Trading activity in the primary municipal market slowed Tuesday afternoon as bond yields are unchanged following a three-day slip.
"We would assume it's a continuation of the yield curve flattening. There's just no supply," a Chicago trader said. "There's decent supply this week but this entire year is down quite a bit."
Supply for the last two months has been scarce causing yields on the long-end to fall recently. The pick-up in issuance has since steadied the market. "Buy-side and retailers are just sitting on hands seeing what's going to happen," the trader said.
Yields on bonds maturing from 2030 through 2036 slid up to one basis point Tuesday afternoon, while bonds on the short end and those beyond 2037 were steady, according to the Municipal Market Data triple-A scale.
Market participants said that munis are following Treasuries, which are unchanged on the day, with the 30-year at 3.56%, the 10-year benchmark at 2.70% and the two-year note at 0.41%.
In a report, John Dillon, Morgan Stanley managing director, wrote on Friday that modest economic improvements may be an indication of this winter's weather impact on economic activity.
"Financial market focus appears to have transitioned back toward the broader recovery, and yields on short/intermediate US Treasury securities have significantly risen since February, with municipals 'following suit,'" wrote Dillon.
Issuance is at its heaviest since the week ending March 14 with $5.4 billion expected to come to market this week, according to Ipreo and The Bond Buyer. Potential volume is about $2 billion more than the $3.2 billion issued last week.
"I don't think the increased supply this week hurts, because we've been running on such low issuance," a trader based in Dallas said. "There's enough money out there to absorb supply. I don't think there's been anything in the five billion range this year."
Institutional sale is expected Tuesday on the largest negotiated deal of the week: $650 million of New York City Transitional Finance Authority future tax secured subordinate bonds. The bonds were offered to retail investors on Friday and Monday. Bank of America Merrill Lynch is leading the deal, which is rated Aa1 by Moody's Investors Service, and AAA by Standard & Poor's and Fitch Ratings.
The University of Connecticut's two-part $202 million general obligation issuance was priced late Monday afternoon, after retail sales on Friday and Monday.
"We are delighted to see consistent public demand for Connecticut bonds as worthy investments. By giving individual investors priority during the retail order period, we provided them a compelling opportunity to generate tax-exempt investment income," Connecticut Treasurer Denise Nappier said in a press release.
Yields on $109.7 million of the GOs ranged from 0.12% with a 2% coupon in 2015 to 3.67% with a 5% coupon in 2034. Yields on $93 million of the refunding GOs ranged from 0.12% with a 2% coupon in 2015 to 2.91% with a 5% coupon maturing in 2025.
Wells Fargo Securities is the lead underwriter and Moody's rated the deal Aa3, S&P rated it AA, and Fitch gave it an AA-minus. All bonds are callable at par in 2024.
The city of San Antonio, Texas, Water System's $104.2 million junior lien revenue and refunding bonds were priced to yield from 0.16% with a 2% coupon in 2015 to 3.27% with a 5% coupon in 2029.
There is a call option at par in 2023, and the bonds earned Aa2 from Moody's, and AA from Standard & Poor's and Fitch Ratings. J.P. Morgan Securities is the lead underwriter.
A separate $100 million of San Antonio Water variable rate junior lien revenue and refunding bonds is expected to be priced by Jefferies Tuesday.
There are two sizable issuances scheduled for competitive sale on Tuesday, the largest of which is a two-part issuance by the Clark County, Nev., School District of $200.8 million GOs. Both the $136.3 million and the $64.5 million portions earned A1 ratings from Moody's and AA-minus from S&P.
"There's also some activity coming from California and Nevada," a trader based in Missouri said. "It's going to be interesting to see whether people are buying into the economic recovery that we're seeing."
The New York City Transitional Finance Authority also has a $110 competitive sale, rated AA2 by Moody's, expected Tuesday.
