NEW YORK — The rush to reinvest December and January coupon money should keep the next few days active in the municipal market.
Trading has been quiet so far, but activity should pick up, particularly as retail investors take a closer look at the largest deal expected to price this week: $550 million of New York City Transitional Finance Authority building aid revenue bonds.
A tide of December and January reinvestment money will need to be put to use this week, traders say. “The consensus is that’s going to add a relative bid side to munis, despite what Treasuries do,” a trader in New York said. “We’ll outperform if Treasuries get cheaper. We’ll under-perform a little if Treasuries catch a bid.”
“We’re coming up to year-end here,” a trader in New Jersey said. “People will have to reinvest the January coupon, and it’s going to be a huge one. Mutual funds have to put the money back to work. But the individuals don’t want to leave the money lying dormant, either. They’ll want to follow the trend.”
Muni yields crossing noon are mostly firmer across the curve, according to the Municipal Market Data scale. They are steady out through five years. Thereafter, they are flat to two basis points lower.
The benchmark 10-year yield finished Friday’s session four basis points lower at 2.18%. The two-year yield ended the day flat at 0.39%. The 30-year yield finished down three basis points to 3.83%.
Treasuries have a weaker tone across the curve. The benchmark 10-year yield has climbed five basis points to 2.09%.
The two-year yield has ticked up one basis point to 0.27%. The 30-year yield has risen six basis points to 3.08%.
Primary market volume should remain near the $6 billion range this week. Industry estimates for anticipated market volume total $5.82 billion, against a revised $5.88 billion last week. But there are no mega deals expected for the week.
The supply that has arrived lately has been manageable. Market participants appear to have money and spend in the primary market, traders say.
Morgan Stanley kicked off the week for the negotiated market as it priced for retail $550 million of New York City TFA building aid revenue bonds. The bonds were rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields range from 0.92% with a 2.00% coupon in 2014 to 4.55% with a 4.50% coupon in 2041. Debt maturing in 2013 was offered in a sealed bid. Credits maturing in 2023 through 2027 and in 2032, 2033 and 2037 were not offered for retail. A second retail offer period is expected Tuesday; institutional investors should have a shot at the bonds starting Wednesday.
The whole New York market will likely be focused on the deal, the trader from New Jersey said, as it is expected to re-price comparable credits.
