NEW YORK — Uncertainty and light new issuance highlight a patient municipal market Monday morning.
Muni yields, taking a wait-and-see approach, so far are not following Treasuries directly based on the news Standard & Poor’s leveled this weekend regarding the unprecedented downgrading of the United States’ credit rating. While Treasury yields proceed to fall across the curve, muni yields are so far firmer on the long end and higher on the short end, a trader in New York said.
“There are probably a little better prices in spots on the longer end, and maybe a little weaker down the curve,” he said. “I see yields falling maybe a little bit.”
Some bid-wanteds have emerged in an otherwise quiet morning.
New issuance could be affected in the short term, as uncertainty across all financial markets gives issuers pause, said Mike Pietronico, chief executive officer at Miller Tabak Asset Management.
“One could understand if an issuer is reluctant to come to market this week just with so much uncertainty in all financial markets, not specifically the muni market,” Pietronico said. “It may require some postponement until Standard & Poor’s announces what municipal ratings might be affected, and the market reacts to it over a period of days.”
Industry pros have cited lack of supply as one reason behind the falling muni yields. And the situation will likely get worse this week. The industry predicts that municipal bonds expected to be sold this week will total $2.25 billion versus a revised $3.24 billion last week.
Citi is expected to lead the biggest deals in the negotiated market with the pricing of $300 million of the Los Angeles Department of Water and Power. Also, Ramirez & Co. is expected to price for retail on Tuesday and institutional on Wednesday $225 million of Puerto Rico Public Buildings Authority government facilities revenue bonds.
“The calendar is light, so I would doubt that it’s going to be anything different from what we’ve seen,” the trader said. “I would expect the deals to be absorbed, but probably at slightly wider spreads, due to the uncertainty. I’m not sure it’s due to the S&P news. We need to try to figure out what the next two to four months are going to look like.”
The Municipal Market Data triple-A scale had not been updated by press time, but ended a dramatic week flat.
The benchmark 10-year muni yield held steady, closing the week at 2.38%. It equaled its lowest yield in almost 10 months, dating to Oct. 21. It dropped 29 basis points last week.
The 30-year muni yield ended at 3.95%, its lowest since early November. Its yield dropped 40 basis points during the week.
The two-year muni yield held at 0.35%, its lowest yield since Aug. 31, 2010.
Treasury yields started this week firmer across the curve in the wake of the news from Standard & Poor’s. The 10-year Treasury yield dropped 13 basis points to 2.43%.
The two-year Treasury yield ticked down two basis points to a new record low of 0.26%.
After taking a break Friday from its huge plunge during the week, the 30-year yield started the morning lower. It fell eight basis points on the morning to 3.76%.
