The start of a new week did not help break the grip of the tone that has held the municipal market for more than a week, as munis were was once again unchanged to slightly weaker.
Traders said activity was light and suggested that the steady gains in the equity markets may be taking some investors' attention away. The Standard & Poor's 500 finished up 3.39% yesterday to 907.23 after posting gains of 9.4% in April.
"It was extremely quiet, not a lot of flows," a trader in Chicago said. "There weren't a lot of buyers, but not a lot of sellers either. If anything, it was slightly weaker. It's a little consolidation, plus you got eyeballs on the equities. It doesn't necessarily take away value from munis, but it takes away attention."
Another trader held his phone up to a silent trading floor to emphasize the point.
"It's real, real flat, real quiet at the moment," another trader in Chicago said. "Everyone's just kind of watching the stock market. It's about the slowest start of a Monday I can remember. People are just kind of figuring out where they want to go, where they want to put their money."
Trades reported to the Municipal Securities Rulemaking Board were unchanged to weaker. An interdealer trade of Iowa State Board of Regents recreation system facilities revenue 4.75s of 2037 yielded 4.81%, unchanged from Friday. An interdealer trade of Virginia Housing Development Authority 5.1s of 2035 yielded 5.42%, up half a basis point from Friday. An interdealer trade of East Baton Rouge Sewerage Commission revenue 5.25s of 2034 yielded 5.35%, up a basis point from Friday.
Georgia led the new-issue slate yesterday, as the triple-A rated issuer began pricing for retail $314.5 million of general obligation bonds. Merrill Lynch & Co. is the lead underwriter on the sale.
In addition, Morgan Stanley preliminarily priced $162.8 million of financial assistance bonds for the Texas Water Development Board. The bonds mature 2010 through 2029, with yields ranging from 1.14% with a 3% coupon in 2011 to 4.55% with a 5% coupon in 2029. Bonds maturing in 2010 were sold via sealed bid. The bonds, which are callable at par in 2018, are rated Aa1 by Moody's Investors Service, AA by Standard & Poor's, and AA-plus by Fitch Ratings.
Morgan Stanley also priced $135.6 million of turnpike revenue refunding bonds for the Ohio Turnpike Commission. The bonds mature 2010 through 2024, with yields ranging from 1.60% with a 3% coupon in 2011 to 4.40% with a 4.375% coupon in 2024. The bonds maturing in 2010 were not reoffered.
The bonds, which are callable at par in 2019, are rated Aa3 by Moody's, AA by Standard & Poor's, and AA by Fitch.
In the competitive market, Iowa's Ankeny Community School District marked the largest deal of the day by selling $47.8 million of GOs to Piper Jaffray & Co. at a true interest cost of 4.5867%. The bonds, which are insured by Assured Guaranty Corp., mature 2010 through 2029, with yields ranging from 2.5% with a 3% coupon in 2013 to 4.55% with a 5% coupon in 2023. Bonds maturing 2010 through 2012 and 2024 through 2029 were not reoffered.
For the week, an estimated $5.46 billion of new issuance is expected, according to The Bond Buyer and Ipreo. Banc of America Securities LLC will price the largest deal of the week for retail on Wednesday: $442 million of senior sewer revenue bonds from the San Diego Public Facilities Authority.
The market declined every day last week after breaking an April rally on Thursday of the previous week. The yield on a triple-A rated, 30-year general obligation bonds rose to 4.58% at the close on Friday after dropping to a 2009 low 4.35% on April 22, according to Municipal Market Data.
In his weekly comment, Citi managing director and fixed-income strategist George Friedlander cited a number of reasons for the pull-back in municipal prices. The shorter-intermediate sector had "seen yields drop too far and, in our view, were due for a correction," he wrote.
Losses in the Treasury market -"despite a partial decoupling of the sectors" - and gains in the stock market, may also have hurt municipals, Friedlander wrote. The yield on a 30-year Treasury shot up 24 basis points during the last week of April, while the Standard & Poor's 500 gained more than 9% for the month.
The market may also have overshot its rally on the expectation of the issuance of taxable Build America Bonds supplanting long-term tax-exempt supply. With yields lower, "some issuers have begun to question whether they were willing to give up the right to call after 10 years, as they can on munis, but not on BABs," Friedlander wrote. The larger BAB deals have had to follow corporate-debt like style, which typically includes a make-whole call provision on the bonds.
"This is not say that there won't be a lot more issuance in this sector; we suspect there will," Friedlander wrote. "It just means that the reduction in traditional muni supply may not be as great as some market participants had begun to expect."
The Treasury market was mixed yesterday. The yield on the benchmark 10-year note, which opened at 3.15%, finished at 3.15%. The yield on the two-year note closed at 0.95% after opening at 0.91%. The yield on the 30-year bond, which opened at 4.07%, closed at 4.06%.
In economic data released yesterday, pending home sales increased 3.2% to 84.6 in March from a revised 82.0 in February, according to an index from the National Association of Realtors. Economists polled by Thomson Reuters had expected a reading of 82.1.
Data to be released this week also includes first-quarter productivity on Thursday and the April unemployment rate and nonfarm payroll numbers on Friday.
