The municipal bond market was set to see more supply hit the primary market, ahead of the Federal Open Market Committee's monetary policy statement on Wednesday afternoon. Secondary market trading is expected to be cautious ahead of the Fed's decision on interest rates as traders keep an eye on Treasury prices, which were moving slightly lower early in the session.
Fed Ahead
"Traders will likely be looking for any detail regarding timing of a rate increase as second quarter economic data has showed signs of a rebound," according to a comment from Interactive Data.
Many think Wednesday's statement will pave the way for a small rate rise at the next FOMC meeting.
"The Fed will effectively use this meeting to prep the guns for a September hike in interest rates. [Fed Chair Janet] Yellen is going to want to hold the market's hand through the entire process to avoid a repeat of the panicked response to the 'Taper Tantrum' and the recent sell-off in Treasuries," said Luke Bartholomew, Investment Manager at Aberdeen Asset Management. "Meanwhile the market is going to want validation that they're right to be thinking the first hike will come in September."
Some think language change in the Fed statement will be a clue as to what happens next.
"Everyone will hang on Yellen's every word, but the Fed will probably reveal their intentions through their 'dot plot'. As long as there are no changes to the 2015 and 2016 dots, then we are full steam ahead for September," said Bartholomew.
Some also think any change in language in the Fed statement will be a clue as to what happens next.
"Recent FOMC statements have used the phrase 'reasonably confident that inflation will move back to its 2% objective;' a change to 'inflation appears to be moving back to its 2% objec-tive' would indicate to the markets that that criterion is being met," according this week's commentary from Janney Capital Markets. "Changing the language on inflation would open the door to a first rate hike at any meeting, though our target remains September. Failure to change the language, on the other hand, would make it tougher to execute a liftoff in September if and when the inflation numbers support that return to 2%."
Secondary Market
Treasury prices were lower on Wednesday with the yield on the two-year Treasury note rising to 0.70% from 0.69% on Tuesday, while the 10-year yield increased to 2.33% from 2.31% and the 30-year yield rose to 3.07% from 3.05%.
The yield on the 10-year benchmark muni general obligation on Tuesday fell two basis points to 2.29% from 2.31% on Monday, while the yield on the 30-year GO dropped four basis points to 3.25% from 3.29%, according to a read of Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Tuesday at 98.9% versus 98.0% on Monday, while the 30-year muni to Treasury ratio stood at 106.6% compared to 106.5%, according to MMD.
Primary Market
In the primary market, Goldman, Sachs will price the New York City Transitional Finance Authority's $750 million of Series S-2 Fiscal 2015 building aid revenue bonds for institutions after holding a two-day retail order period on Monday and Tuesday.
The bonds were priced for retail on Day 2 to yield from 1.13% with 2% and 5% coupons in a split 2018 maturity to 3.45% with a 5% coupon in 2035; a 2044 term bond was priced as 4s to yield about 4.029%; a 2044 term bond was priced as 4s to yield about 4.029%. The 2016 and 2017 maturities were offered as sealed bids; no retail orders were taken in the 2028 through 2030 maturities, in the 2032 through 2034 maturities or in the 2040 or 2042 maturities.
The BARBs were rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Since 1995, the HDC has sold about $18 billion of bonds, with the most issuance coming in 2-13 and 2014 when it sold $1.77 billion and 1.93 billion, respectively. The least amount of issuance occurred in 1995 and 1997, when it issued $242 million and $304 million, respectively.
Wells Fargo Securities is expected to price the Lamar Consolidated Independent School District, Texas' $211.59 million of unlimited tax schoolhouse refunding bonds on Wednesday. The bonds are expected to mature serially from 2018 through 2048. The issue is backed by the Permanent School Fund guarantee program and rated Aa2 by Moody's and AA by S&P.
In the short-term competitive sector, Houston, Texas, is selling $220 million of Series 2015 tax and revenue anticipation notes on Wednesday. The TRANS are rated SP1-plus by S&P and are dated July 2 and due on June 30, 2016.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 43,503 trades on Tuesday on volume of $10.754 billion.
The most active bond, based on the number of trades, was the Texas Public Finance Authority's Series 2015A Midwestern State University Revenue Financing System revenue and refunding bonds 4 1/8s of 2044, which traded 1143 times at an average price of 100.426 with an average yield of 4.063%. The bonds were initially priced at 97.581 to yield 4.27%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $514.9 million to $12.11 billion on Wednesday. The total is comprised of $3.22 billion competitive sales and $8.89 billion of negotiated deals.
Caitlin Devitt contributed to this report.
