The municipal market was unchanged to slightly firmer yesterday amid fairly light secondary trading activity, kicking off what should be a primary-driven week with more than $8 billion on the calendar.
“It’s not overwhelmingly active out there, but it’s Monday, so that’s not exactly unusual,” a trader in Los Angeles said. “I’d definitely say it’s flat out there. There’s really not much movement anywhere, though I guess we’re leaning a bit on the firmer side if anything. Depending on what you’re trading and where on the curve you’re talking, you might be able to pick up a basis point or so. But it’s pretty quiet, and pretty flat.”
“There’s a bit of a firmer tone, but it’s fairly quiet at this point,” a trader in New York said. “Overall, I’d call it pretty unchanged at this point, but there is a little bit of firmness out there.”
The Treasury market showed some losses yesterday. The benchmark 10-year note was quoted near the end of the session at 3.49% after opening at 3.46%.
The 30-year Treasury bond was quoted near the end of the session at 4.36% after opening at 4.34%. The two-year note yield was quoted near the end of the session at 0.81% after opening at 0.78%.
The triple-A scale yielded 2.92% in 10 years yesterday, even with Friday’s level, but still much stronger than the late March level of 3.09%, according to Municipal Market Data. The 20-year yield was 3.74%, even with Friday’s reading, while the scale yielded 4.04% in 30 years, which also matched Friday.
Friday’s triple-A muni scale in 10 years was at 85.1% of comparable Treasuries and 30-year munis were at 93.5%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 97.6% of the comparable London Interbank Offered Rate.
Issuers from the Northeast will take the spotlight as the New York City Transitional Finance Authority and Pennsylvania each plan to sell at least $1 billion this week in the heaviest calendar of municipal bond deals in more than a month.
Those offerings and three other debt sales for transportation and utility projects will be in the forefront as the primary market prepares for an estimated $8.31 billion in new volume this week, according to Ipreo LLC and The Bond Buyer.
The TFA plans to sell $1.14 billion of future tax-secured bonds today after a retail order period yesterday by senior book-runner Bank of America Merrill Lynch. Structured as seven series — including taxable Build America Bonds and tax-exempt subordinate debt — the deal is rated Aa1 by Moody’s Investors Service, AAA by Standard & Poor’s and AA-plus by Fitch Ratings.
The structure includes $400 million of refunding bonds — $20 million of which will be bid competitively today — $342 million of taxable BABs, $250 million of additional BABs that will be the TFA’s first-ever qualified school construction bond debt, $70 million of traditional taxable municipal bonds that will also be bid competitively today, and $78 million of taxable BABs to be sold to the New York State Division of the Lottery.
The competitive deals will range in maturity from 2011 to 2015, but the exact maturities for the other portions of the deal were unavailable.
Citi priced for retail investors $876.1 million of metropolitan highway system revenue bonds for the Massachusetts Department of Transportation.
The bonds mature from 2011 through 2027, with term bonds in 2032 and 2037. Yields range from 0.86% with a 2% coupon in 2011 to 4.81% with a 4.75% coupon in 2037.
Bonds maturing in 2022, from 2023 through 2026, and in 2032 were not offered during the retail order period.
The bonds, which are callable at par in 2020, are rated A3 by Moody’s, A by Standard & Poor’s and A-plus by Fitch. The deal will be priced for institutional investors today.
Pennsylvania’s two-pronged competitive sale of general obligation bonds is scheduled for tomorrow. The larger of the two series will consist of $548.9 million of taxable GOs structured to mature from 2022 to 2030, and the $451.1 million series consists of tax-exempt GOs maturing from 2011 to 2021.
The state’s GOs are rated Aa1 by Moody’s, AA by Standard & Poor’s AA-plus by Fitch.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “the municipal market continues to bob along at the top of the dishpan, regardless of what’s going on below.”
“There, Treasuries and gold have surged, unwound, and surged again on flight to safety fears while the Euro-drama has unnerved equities and credit,” he wrote. “The fear is that this week’s large, BAB-heavy calendar could get caught offsides if risk appetites melt at the long end where Treasuries — and, lately, Libor swaps — are expected to rally. In general, the markets have enough issues to contend with this week that a heavy spate of new issue supply could struggle.
“Notably, regulatory reform is scheduled to come to a head with an expected vote in the Senate — developments here have been increasingly unpredictable, with dealer derivative and prop trading operations now hanging in the balance,” Fabian continued. “Also there is some hope that muni BAB extension could come for a vote this week, although the pressure here is ever downward for future subsidy rates as cost control is more in vogue.”
The Empire State Manufacturing Survey showed conditions for New York State manufacturers declined in May, the Federal Reserve Bank of New York reported yesterday, as the general business conditions index slipped to 19.11 in the month from 31.86 in April. Economists surveyed by Thomson Reuters had expected the index would be 30.00.
