The municipal bond market was starting last full trading week of 2014 quietly the after polishing off two of the busiest weeks of the year where an estimated $25 billion of new supply was priced.
Municipal bond prices were slightly weaker at mid-session, according to Municipal Market Data.
Primary Market
Volume for this week is estimated at $3.737 billion, according to Ipreo and The Bond Buyer.
Topping the negotiated calendar is a $510 million deal from the New York State Dormitory Authority. Bank of America Merrill Lynch will price the DASNY tax-exempt personal income tax revenue bonds which for institutions on Tuesday. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
Also on tap, Morgan Stanley is pricing a $296 million deal for the Metropolitan Water Reclamation District of Greater Chicago that offers a mix of refunding securities and new-money designated as "green bonds" to fund projects including its mammoth "Deep Tunnel." The bonds are rated triple-A by S&P and Fitch. The issue includes four tranches of bonds including Series A of $100 million of unlimited tax capital improvement bonds maturing between 2039 and 2044.
But one deal that won't be coming to market is the Pennsylvania Commonwealth Financing Authority's $198.7 million revenue bonds originally set for sale on Thursday. The CFA and the Office of the Budget cancelled the sale because the audited financial data to be reported in the commonwealth's Comprehensive Annual Financial Report for fiscal 2014 was not ready.
The terms of the bond purchase agreement between the CFA and PNC Capital Markets LLC required delivery of a complete, final official statement by the end of Thursday. The CAFR is expected to be completed by Dec. 31, after which the CFA expects to undertake a new sale.
"This is another messy situation for Pennsylvania, which has had and is likely to have other financial issues in the near term," Tom Kozlik, a director at Janney Capital Markets, says in a research note. "This summer Moody's downgraded Pennsylvania (Aa3/AA-/AA-) to Aa3 from Aa2 due to the state's structurally imbalanced budget and pension funding problems."
He said increases in state revenues do not always result in an improvement in credit quality.
"For Pennsylvania, even though revenues are trending higher, demand for spending is growing at an even faster pace," Kozlik says. "This dynamic is creating a structural imbalance that is difficult but not impossible for Pennsylvania politicians to repair."
Secondary Market
High-grade municipal bond prices moved slightly lower. The yield on the benchmark 10-year general obligation was up as much as one basis point from 1.98% on Friday while the yield on 30-year GOs was also up as much as one basis point from 2.88%, according to a midday read of Municipal Market Data's triple-A scale.
Treasury prices were mixed, with the two-year note yield inching up to 0.56% from 0.55% on Friday. The 10-year yield slipped to 2.09% from 2.10% while the 30-year decreased to 2.74% from 2.76% on Friday.
The 10-year muni-to-Treasury ratio was calculated at 94.5% on Friday versus 92.3% on Thursday; the 30-year muni to Treasury ratio was at 104.7%, compared with 102.6% on Thursday.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,999 trades for Friday on volume of $10.009 billion.
Most active on Friday, based on the number of trades, were the Cave Spring, Ga., Housing Development Corp.'s Rome ALF mortgage revenue bonds, Series A 7 1/4s of 2044, which traded 189 times with an average price of 100 and an average yield of 7.25%.
