Puerto Rico and California general obligation bonds that sold last week amid high demand softened in secondary trading Monday.
The yield on Puerto Rico GOs with an 8% coupon maturing in 2035 climbed Monday morning, touching 8.65%, up 12 basis points from Friday. The bonds have weakened since the first day of secondary trading, when yields plunged more than 40 basis points from the issue price.
"We definitely saw Puerto Rico soften a bit, and we think it got way ahead of itself last week," a financial advisor on the west coast said in an interview. "The people who bought them last week bought them at much higher levels and jumped in too quickly."
Market participants said buyers looking for a quick gain sold the Puerto Rico bonds immediately in the secondary, leaving traditional muni buyers paying higher prices.
"Puerto Rico deal is looking pretty weak so the non-muni flippers came and they just got out, now we're settling down into more of the traditional muni guy," one trader in New Jersey said. "It was a big boy deal and those non-muni buyers wanted to take a lot of money."
California GOs issued with a 5% coupon in 2025 climbed as much as six basis points Monday to 3.12%, before bouncing back to around 3.07%. The bonds, issued Feb. 12, firmed by 12 basis points the day the deal became free to trade.
Strong demand for the Puerto Rico and California GO bonds meant both issuers upsized the sales. Puerto Rico issued $3.5 billion, up from the initially expected $3 billion, and California offered $1.8 billion instead of $1.6 billion.
The largest negotiated issuance scheduled for this week is the $393.61 million state of Wisconsin transportation revenue bonds and revenue refunding bonds set to come to market on Thursday.
"It is hard to tell how the market is doing after a week of large issuance," a municipal bond trader based in New York said in an interview. "It's too early. It's a quiet start to the week, there are not a lot of prints."
The lack of issuance this week may balance an historical tendency toward low demand in the month of March, BlackRock said in a research report Monday.
"March traditionally brings some weakness, as demand tends to wane at tax time," BlackRock's municipal research team said in the report. "Against this backdrop, we believe a neutral duration posture is warranted, as is a continued focus on income over total return given the magnitude of the recent gains."
Yields were steady on Monday, according to Municipal Market Data, with bonds maturing from 2021 to 2035 weakening by as much as one basis point.
Treasuries jumped, with the 30-year yield climbing three basis points to 3.62% and the 10-year benchmark rising four basis points to 2.69%. Two-year note yields were unchanged at 0.36%.
