NEW YORK — The municipal market appears to be in the middle of a moderately improved session. There are a slew of offerings in the secondary market. Some sit right around where they should be, while others are 20 basis points through the market, a trader in New York said.
“It’s getting a little better,” he said, referring to the secondary. “No one gave up on the market and it’s coming back a little. People are getting involved. But prices are scattered out there … hard to read. They’re reversing some the losses we saw last week.”
Tax-exempt yields appear set for further firming Tuesday across the curve. Yields are flat to two basis points lower through six years, according to the Municipal Market Data scale.
Yields from seven to 20 years are four to eight basis points lower. Beyond 20 years, they are down two to six basis points.
The benchmark 10-year muni yield lost three basis points Monday to 2.53%. It sits 56 basis points above the record low it held on Sept. 23.
The 30-year yield inched down one basis point to 3.71%. The two-year yield held steady at 0.45% for a fourth straight session.
Treasury yields have firmed somewhat from the belly of the curve on out. The benchmark 10-year Treasury yield has fallen four basis points to 2.13%. On Monday, it dropped eight basis points.
The 30-year has declined three basis points to 3.11%, after plunging nine basis points on Monday. The two-year yield has inched up one basis point to 0.28%.
The industry estimates the municipal bond market should see $6.7 billion in new issuance this week. Last week’s number was revised downward to $4.5 billion.
Three deals in particular, two negotiated and one competitive, are expected to provide a large block of the volume.
In the negotiated space, Goldman, Sachs & Co. paced 28 other firms on pricing for a second day of retail on $1.8 billion California general obligation bonds. The Cal bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings, are expected to drive the market this week.
Pricing levels for the second day of the retail order period mirrored those of the first. Yields ranged from 1.15% with coupons of 3.00% and 4.00% in 2014 to 4.87% with coupons of 4.75% and 5.00% in 2041. Debt maturing in 2025, 2027, 2028, and 2029 was not offered to retail.
Retail took about 12.5% of the issue in orders Monday. Traders surmised that retail investors’ attention focused more on the struggles in the equities markets.
One trader in California not involved with the deal said the Cal GOs have been priced through where one can buy bonds in the secondary. So, he added, for retail investors, that means that unless one has to have a specific maturity that’s not available in the secondary, there’s no reason to buy the Cal GOs.
The deal is effectively competing with what’s available in the secondary. “So, either the secondary gets cleaned up in the competing maturity — leaving this the only game in town — or there’s going to have to be some kind of price adjustment,” he said.
In the competitive market Tuesday, Citi won $815.8 of Pennsylvania GOs in two series. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
Yields for the first series, $650 million, ranged from 0.77% with a 4.00% coupon in 2014 to 4.00% priced at par in 2031. Credits maturing in 2012 and 2103 were not reoffered.
Yields for the second series, $165.8 million, ranged from 0.30% with a 2.00% coupon in 2012 to 2.72% with a 5.00% coupon in 2022.
