The municipal market was largely unchanged yesterday, with the Federal Reserve's monetary policy meeting on the horizon, slated for today and tomorrow.
"It's quiet and fairly flat," a trader in New York said. "A few bonds came out for the bid early on. I thought maybe we'd see a ton of bid-wanteds, but we really didn't end up with much. Besides that, there's not much going on. I think yields have to come off quite a bit for retail to jump back in. I think they got used to 5% levels, and kind of got locked into that."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. A dealer sold to a customer South Carolina's Berkeley County School District 5.125s of 2030 at 5.22%, even with where they were sold Friday. Bonds from an interdealer trade of New Jersey Housing and Mortgage Finance Agency 5.375s of 2030 yielded 5.41%, even with where they traded Friday. Bonds from an interdealer trade of California Health Facilities Financing Authority 5s of 2038 yielded 5.21%, even with where they were sold Friday.
"There wasn't a whole lot going on in the market," a trader in Los Angeles said. "It was a pretty quiet start to the week, ahead of the Fed meeting, and the [April] payrolls number later in the week, which people are certainly going to be paying attention to."
The Treasury market showed gains. The yield on the benchmark 10-year Treasury note, which opened at 3.87%, finished at 3.83%. The yield on the two-year note was quoted near the end of the session at 2.36% after opening at 2.41%.
A slate of economic data will be released this week, led Friday by the April non-farm payrolls report. The April consumer confidence index will be released today and the advanced first-quarter gross domestic product and the April Chicago purchasing managers' index will be released tomorrow. Thursday will see a slew of indicators: the release of March personal income, March personal consumption, the March core personal consumption expenditures deflator, initial jobless claims for the week ended April 26, continuing jobless claims for the week ended April 19, the April Institute for Supply Management business activity composite index, and March construction spending. In addition to payrolls, Friday will see March factory orders.
Economists polled by IFR Markets are predicting a loss of 75,000 jobs, a 62.0 consumer confidence reading, a 0.3% rise in GDP, a 47.5 level for the Chicago PMI, a 0.3% uptick in personal income, a 0.3% increase in personal consumption, 0.2% growth to the core PCE deflator, 360,000 initial jobless claims, 2.950 million continuing jobless claims, a 48.0 ISM index reading, a 0.9% dip in construction spending, a 0.3% jump in factory orders, and a 2.0% increase in factory orders excluding transportation.
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that, while the muni market has "felt a bit heavy" recently, it still "hasn't had a real test of how it will perform under pressure in the post-February world."
"Clearly, the capacity of the muni market to handle unsold balances has been sharply curbed in several ways," he wrote. "First, a number of major dealers still have constrained balance sheets. Second, the trading-oriented TOBs - dealer TOBs and hedge funds - have become far less active. Third, many medium-sized regional firms have pulled in their horns sharply, seeking outside assistance on distribution of new issues to a greater extent, in an attempt to avoid having to take unsold paper into inventory. Thus, we suspect that during periods of truly heavy long-term supply and/or substantial supply combined with market weakness, some new-issue relative 'bargains' could emerge, as underwriters continue to price deals to sell."
An estimated $4.81 billion of competitive and negotiated volume is expected to be sold in the new-issue market this week, compared with a revised $7.29 billion that came to market last week, according to Thomson Reuters.
In the largest negotiated deal of the week, the California Statewide Communities Development Authority will sell $534 million of revenue bonds on behalf of Catholic Healthcare West in a deal that will be priced by Citi tomorrow. The bonds will be largely insured by MBIA Insurance Corp., but various maturities will be insured by Assured Guaranty Corp. However, the breakdown of which maturities will be enhanced by each of the two insurers, and other details of the structure, were still being hammered out by bankers at press time. The bonds have underlying ratings of A2 from Moody's Investors Service, A from Standard & Poor's, and A-plus from Fitch Ratings.
In the new-issue market yesterday, Banc of America Securities LLC priced for retail investors $300 million of home mortgage revenue bonds for the California Housing Finance Agency in two series, subject to the alternative minimum tax. This is the first of a two-day retail order period, which will be followed tomorrow by institutional pricing. Bonds from the $75 million Series J mature from 2009 through 2018, with yields ranging from 3.375% in 2009 to 5.125% in 2018, all priced at par. These bonds are not callable.
Bonds from the $225 million Series K mature in 2023, 2028, 2033, and 2038. Bonds maturing in 2023 yield 5.25%, priced at par. Bonds from the remaining maturities were not offered during the retail order period. The bonds are callable at par in 2017. The Series J bonds are insured by Financial Security Assurance Inc. The Series K bonds are uninsured. The underlying credit is rated Aa2 by Moody's and AA-minus by Standard & Poor's.
JPMorgan priced for retail investors $287.1 million of power-supply revenue bonds for the California Department of Water Resources. The bonds contain two maturities in 2018, with $143.5 million yielding 4.05% with a 4% coupon, and with $143.6 million yielding 4.05% with a 5% coupon. The bonds are not callable. The credit is rated Aa3 by Moody's, A by Standard & Poor's, and A-plus by Fitch.
