The municipal market was unchanged with a slightly weaker tone yesterday. Traders said tax-exempt yields were flat to higher by one basis point in spots.
“We’re fairly quiet so far,” a trader in New York said. “There’s not a whole lot of movement, but we’re maybe cheaper a basis point or so in spots. Overall though, I’d call it mostly flat. There are some bits and pieces trading, but there’s not a ton going on so far.”
“It’s mostly unchanged really,” a trader in Los Angeles said. “There might be a little bit of a weaker tone here and there, but I am not really seeing much evidence to call it anything other than unchanged. The activity in the secondary was sort of on the lighter side, but business was getting done.”
The Treasury market showed some mild losses yesterday. The benchmark 10-year note was quoted near the end of the session with a yield of 3.62% after opening at 3.61%. The yield on the two-year was quoted near the end of the session at 0.80% after opening at 0.79%. The yield on the 30-year bond was quoted near the end of the session at 4.57% after opening at 4.56%.
The Municipal Market Data triple-A scale yielded 2.84% in 10 years and 3.80% in 20 years yesterday, matching Monday’s levels. The scale yielded 4.16% in 30 years yesterday, also matching Monday.
Monday’s triple-A muni scale in 10 years was at 78.9% of comparable Treasuries and 30-year munis were at 91.4%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 95.2% of the comparable London Interbank Offered Rate.
In the new-issue market yesterday, Barclays Capital priced $172.3 million of airport system revenue bonds for Denver.
The bonds mature form 2016 through 2032, with yields ranging from 2.95% with a 5% coupon in 2016 to 4.93% with a 4.75% coupon in 2032.
The bonds, which are callable at par in 2020, are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings.
Siebert Brandford Shank & Co. priced $157.8 million of general improvement refunding bonds for San Antonio.
The bonds mature from 2011 through 2023, with yields ranging from 0.60% with a 4% coupon in 2012 to 3.32% with a 5% coupon in 2023. Bonds maturing in 2011 were not formally re-offered.
The bonds, which are callable at par in 2020, are rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
Denton, Tex., competitively sold $58.8 million of combined tax and revenue refunding bonds to Hutchinson Shockey Erley & Co. with a true interest cost of 3.34%.
The bonds mature from 2011 through 2025, with yields ranging from 3.36% with a 5% coupon in 2021 to 3.83% with a 4% coupon in 2025. Bonds maturing from 2011 through 2020 were not formally re-offered.
The bonds, which are callable at par in 2019, are rated Aa3 by Moody’s and AA by Standard & Poor’s.
RBC Capital Markets priced $37 million of unlimited-tax refunding bonds for Texas’ Del Valle Independent School District.
The bonds mature from 2011 through 2022, with yields ranging from 0.35% with a 2% coupon in 2011 to 3.36% with a 4% coupon in 2022.
The bonds, which are callable at par in 2020, are backed by the Permanent School Fund guarantee program. The underlying credit is rated AA-minus by Standard & Poor’s.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. Bonds from an interdealer trade of insured Los Angeles Unified School District 4.5s of 2022 yielded 4.32%, even with where they were sold Monday. A dealer sold to a customer Puerto Rico Public Finance Corp. 6s of 2026 at 3.74%, even with where they traded Monday.
A dealer sold to a customer California Housing Finance Agency 5.75s of 2047 at 5.62%, even with where they were sold Monday. A dealer sold to a customer Miami-Dade County 5s of 2041 at 4.96%, even with where they were sold Monday.
A dealer bought from a customer New York State 4.375s of 2035 at 4.49%, even with where they traded Monday. A dealer sold to a customer Illinois Finance Authority 6s of 2038 at 6.10%, even with where they were sold Monday.
A dealer sold to a customer Palm Beach, Fla., 5s of 2027 at 4.12%, even with where they were sold Monday. Bonds from an interdealer trade of California 5.75s of 2031 yielded 5.36%, even with where they were sold Monday.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “scarcity of well-rated, tax-exempt bonds continues to support very low nominal yields on municipal bonds, with an assist last week from a stronger Treasury market.”
“Throughout the crisis, municipals have been variously treated as a safety instrument (that moves with Treasuries) and a spread product (that moves counter, generally),” Fabian wrote.
“At this point, there are enough buyers along most of the yield curve to outweigh increasingly hyperbolic reporting on the looming credit crisis in our sector. And, while the situation in Greece does not have a clear analog in the municipal market, there are implications for increased regulation going forward.
“The buyers scared off by the muni-scare articles are so far in the minority, as we note that credit spreads continue to tighten aggressively, in particular along the front of the yield curve where individual investors provide the backbone of demand,” he wrote.
“In fact, spreads up front now approximate pre-crisis levels and, adjusting for pre-crisis issuer payments for bond insurance, this may be the most credit-friendly environment in years.
“Last week, two senators launched a bill that would end issuers’ use of tax-exempt bonds and/or BABs after this year, but the prospects for passage are extremely poor,” Fabian continued.
“On the other hand, the SEC finally published their long awaited final reforms for the money funds—changes are not nearly as dramatic for our sector as they could have been but will still likely drive downward pressure on yields at the very front of the curve for the foreseeable future.”
The economic calendar was light yesterday.