NEW YORK — Washington has six days before the United States faces default on its debt. But more important for the municipal market, the government has little time before ratings agencies downgrade the U.S. sovereign credit.
As with the rest of the week, Wednesday’s activity betrays a tentativeness on the part of the primary and secondary markets, traders have noticed. Still, they remain optimistic, as there is a lot of cash waiting to be put to use and the week’s deals are seeing decent appetite.
But trading is mostly showing signs of fatigue, a trader in Chicago said.
“I’m seeing a lot of apprehension,” he said. “You’ve got those who just want to see how it’s all going to shake out and those who believe not much is going to change. This is just a terrible game of chicken; we need a resolution so everyone can move forward.”
The Municipal Market Data triple-A curve shows a divergence in trajectory on the yield curve. Short-term yields are steady to two basis points firmer. Bonds maturing from 2021 to 2041 are flat to two basis points weaker. But those around the 15- to 20-year range are steady.
In Tuesday’s muni market, short-term tax-exempts strengthened two basis points while intermediate yields backed up one basis point, according to MMD. The 10-year yield was steady at 2.68%, the two-year yield remained at a calendar-year low of 0.40%, and the 30-year yield remained at 4.35%.
Treasuries were mostly weaker heading into Wednesday afternoon. The 10-year Treasury yield is one basis point higher at 2.97%.
The 30-year yield is flat at 4.29%, while the two-year yield climbed three basis points to 0.43%.
About $4.1 billion in new deals is expected this week, roughly half of last week’s supply. Issuers are hesitant to make a move into the market amid the uncertainty the debt-ceiling crisis has generated.
Bank of America Merrill Lynch won the biggest deal this week this morning: $418.3 million Maryland general obligation state and local facilities loan of 2011. The bonds are rated triple-A by the major rating agencies.
Yields range from 0.70% with a 5.00% coupon in 2014 to 3.638% with a 3.50% coupon in 2025. Credits maturing in 2015 through 2020, as well as in 2023, 2024, and 2026 were sold, but not available.
In the negotiated market, Bank of America Merrill Lynch priced $281.4 million of Maine Health and Higher Educational Facilities Authority revenue bonds, MaineGeneral Medical Center issue. The bonds are rated Baa3 by Moody’s Investors Service and BBB-minus by Fitch Ratings.
Yields range from 3.45% with a 5.00% coupon in 2015 to 7.05% with coupons of 6.75% and 7.00% in a split maturity in 2041. Credits maturing in 2032, 2036 and 2041 with a 6.95% coupon are sold out.
