The municipal market opened slowly on Monday as yields adjust from investors' knee-jerk reaction to the Federal Reserve Chair Janet Yellen's interest rate spook, which the market interpreted as moving the possibility of a rate hike up six months in 2015.
"Better market dynamics drove intermediate and long bond yields lower last week, although the front end continued to show softness as accounts contemplated the risk of earlier Fed action on rates," Municipal Market Advisors said in its weekly outlook.
Muni yields softened Monday morning, with bonds maturing from 2021 to 2036 jumping as much as two basis points, while yields on bonds maturing beyond 2037 climbed as much as three basis points. Yields on bonds maturing in the short-term were steady.
The total potential volume scheduled for this week's new issuance calendar is $4.19 billion, down from last week's $4.78 billion issuance.
"There's nothing going on this morning; it's meeting day. Treasuries are down, and munis are coming up, but there aren't any trades to speak of right now," a West Coast trader said.
Low supply continues to plague the market, as two to three mega deals carry most of the week's issuance.
"There's the University of California issuing a big deal this week that I'm looking forward to," the trader said.
Issuance for this week is led by the two-fold University of California deal totaling about $968.2 million expected Thursday. The deal consists of $559.4 million of tax-exempt revenue bonds and $408.8 million of taxable revenue bonds.
Wells Fargo Securities will bring the tax exempts to market. The bonds mature serially from 2017 to 2034, with terms in 2044 and 2049. The retail order period is scheduled to begin on Wednesday.
Goldman Sachs & Co is the lead underwriter for the taxable bonds, while Wells Fargo is the joint bookrunner. An indication of interest period begins on Wednesday. The deals are rated Aa2 by Moody's Investors Service and AA by Standard and Poor's.
There are no deals over $100 million slated for issuance in the competitive market on Monday.
In the negotiated market, Goldman Sachs will price $261.1 million of dedicated unlimited tax ad valorem property tax GO bonds and refunding bonds for San Diego School District, the largest deal of the day. The bonds are rated Aa3 by Moody's and AA by S&P. A retail order period is expected Monday.
Treasury yields were mixed Monday morning, as the 30-year yield and the 10-year benchmark slid two basis points each to 3.57% and 2.74%, respectively. Two-year note yields gained one basis point to 0.45%.
