NEW YORK — The municipal market is slowly going through the motions Tuesday while Standard & Poor’s stirs the pot with its recent credit ratings assessments and downgrades.
Retail investors are providing what little action there is in the secondary market, a trader in New York said.
“We’re seeing it with retail, all along the curve; there’s a fair amount of bid-wanteds out today,” he said. “Institutions are quiet.”
The market was distracted by the stock market implosion yesterday. But with stocks doing better heading into the afternoon, client calls are on the rise, the trader added.
“The market today hinges on what’s going on in the stock market; that’s everyone’s focus,” he said. “If you can get some stability there — and they don’t even have to go up a lot — people will focus on getting back to business with bonds.”
Muniland became nervous about the ratings of many of its credits after Standard & Poor’s docked the U.S. rating on Friday. In several reports released Monday, Standard & Poor’s downgraded public finance housing credits linked to Fannie Mae, Freddie Mac, or the Federal Housing Administration, whose credit profiles are all directly linked to the U.S. credit rating.
But the rating agency essentially vouched for munis when it said that public finance credits stand “among the most stable and predictable in the world.” Furthermore, it added, the decentralized structure of the government allows for state and local credits to be analyzed independently.
Muni yields, which have so far been following Treasuries somewhat, are mostly weaker, according to the Municipal Market Data triple-A scale. Yields through 2017 were steady. But maturities after 2018 are flat to three basis points higher.
The benchmark 10-year muni yield held steady Monday, closing at 2.38%. It equaled its lowest yield in almost 10 months, dating to Oct. 21.
The two-year muni yield also held at 0.35%, its lowest yield since Aug. 31, 2010. The 30-year muni yield fell three basis points Monday to 3.92%, its lowest since early November.
Treasury yields continue to back off their rally heading into Tuesday afternoon. The 10-year Treasury yield rose five basis points to 2.40%, off its lowest level since Jan. 20, 2009.
The two-year Treasury yield continues to linger near record territory. It crossed noon at 0.29%, two basis points higher than its record low.
The 30-year yield jumped six basis points to 3.73%.
Market pros identify extremely light supply as a direct cause for falling muni yields. This week, the situation likely will get worse. The industry predicts that municipal bonds sold this week will total $2.25 billion versus a revised $3.24 billion last week.
On the day’s negotiated docket, Ramirez & Co. priced for retail $225 million of Puerto Rico Public Buildings Authority government facilities revenue bonds, Series S. The bonds are rated Baa1 by Moody’s, triple-B by Standard & Poor’s and BBB-plus by Fitch.
Yields range from 4.65% with a 5.75% coupon in 2022 to around 5.786% with a 5.75% coupon in 2039. Credits in 2041 were not offered to retail.
The equities markets have picked themselves up off the mat after Monday’s knockout punch. At press time, the primary market indexes are up at least 1.40%; the Dow Jones Industrial Average has climbed 151 points so far.
