NEW YORK — Dealers in the municipal secondary market have been sitting on the sidelines Tuesday morning.
They’re not seeing what they want, and they don’t like what they see. Dealers are looking for high-quality blocks to chase. And they’ve been thrown by volatility in the Treasury market, as yields have been backtracking somewhat from overnight lows, said a trader in Florida.
“A lot of quality visible blocks are not present right now,” he said. “If there were more paper for dealers to chase, you could push the market a little higher. There are few sellers in the marketplace.”
Still, there were some decent-size trades of Georgia general obligation bonds Monday, followed by some super high-grades in the 10-year sector, which made for an exciting session. There’s some expected follow-through Tuesday, the trader noted.
But issues involving Greek debt are rearing their heads again, and the Treasury market is seeing the effects. Treasury yields recently have been providing direction to munis.
There are rumblings about Greece experiencing a “selective default,” which flattened the Treasury yield curve overnight; investors shed short-term paper for intermediate and long-term bonds, which have become particularly rich since Friday’s lackluster employment report.
Muni yields, following Treasuries, fell across the curve Tuesday morning, according to the Municipal Market Data scale. They were flat to two basis points firmer for maturities from 2013 to 2016.
They were one to four basis points lower for bonds maturing from 2017 to 2023. And they were two to five basis points lower for debt maturing in 2024 to 2036.
Yields for the long end of the curve fell one to three basis points.
The benchmark 10-year muni yield fell four basis points Monday to 2.70%. It stands 28 basis points beneath its average for 2011.
The 30-year yield lost three basis points, falling to 4.34%, or 28 basis points under its average for the year. The two-year yield was unchanged at 0.42% for the 20th straight session, hovering 18 basis points below its average for 2011.
Though mostly firmer, muni yields fell behind a booming Treasury market, which pushed ratios higher for a third session, Janney Capital Markets fixed income analysts noted in a report. Muni-Treasury ratios for 10- and 30-year triple-As ended Monday at 92.5% and 103.1%, respectively.
Treasury yields this morning mostly continued down their path from Monday’s firming. The 10-year yield dropped two basis points to 2.90%, settling solidly below 3.00%. The 30-year yield fell four basis points to 4.17%.
The two-year yield inched up one basis point to 0.38%.
Healthy new issuance will help the market, traders said. Muni bonds to be sold this week are expected to total $5.3 billion, against a revised $878.4 million last week.
On Monday, JPMorgan and Bank of America Merrill Lynch started the week off well when they priced for retail $594.5 million of Michigan State Building Authority revenue and refunding bonds and $390 million of New York Metropolitan Transportation Authority revenue bonds, respectively. Both met a hungry audience, traders said.
The institutional period should be strong for both deals, traders noted.
