The municipal market was mostly flat Monday amid light to moderate secondary trading activity, as 10-year munis matched the record low they established Friday.
“There wasn’t really much activity to speak of today, but it still feels pretty good out there,” a trader in Los Angeles said. “I don’t know that there was any real movement, or that we’re anything other than just flat, but it didn’t feel like there had been any sort of a change to the overall tone that’s been in the market for the past few weeks.”
The Treasury market showed some losses Monday. The benchmark 10-year note was quoted near the end of the session at 2.83% after opening at 2.82%. The 30-year bond was quoted near the end of the session at 4.02% after opening at 4.00%. The two-year note was quoted near the end of the session at 0.55% after opening at 0.50%.
The Municipal Market Data triple-A scale yielded 2.54% in 10 years and 3.60% in 20 years Monday, matching Friday’s levels. The scale yielded 3.94% in 30 years Monday, also matching Friday.
“It’s pretty flat,” a trader in New York said. “There isn’t a whole lot of movement right now. We’re somewhat quiet and unchanged.”
Monday’s triple-A muni scale in 10 years was at 90.1% of comparable Treasuries and 30-year munis were at 98.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 107.4% of the comparable London Interbank Offered Rate.
A municipal bond market starved for a hearty serving of tax-exempt paper is not going to get it this week.
States and local governments are slated to sell a modest $5.56 billion of debt, according to data from Ipreo and The Bond Buyer, following a paltry $3.16 billion in new offerings last week.
The biggest deal on the calendar is a $701 million negotiated offering from the Phoenix Civic Improvement Corp., scheduled to price Tuesday.
The revenue bonds will come in three pieces — a $648 million tax-exempt series with maturities ranging from 2013 to 2040, a $32.3 million tax-exempt series with maturities from 2011 to 2025, and a 30-year recovery zone economic development bond with $21.3 million in face value.
The bonds were priced for retail investors Monday. Bonds from the $648 million tax-exempt series mature from 2013 through 2030, with term bonds in 2035 and 2040. Yields range from 1.41% with a 2% coupon in 2013 to 5.00% in 2040, priced at par.
Bonds maturing from 2020 through 2024, from 2026 through 2029, and in 2035 were not offered during the retail order period. The bonds are callable at par in 2020, except bonds maturing in 2040, which are callable at par in 2015.
Bonds from the $32.3 million tax-exempt series mature from 2023 through 2025 and were not offered during the retail order period. The bonds are callable at par in 2020.
Bonds from the $21.3 million series of taxable RZEDBs mature in 2040 and were priced to yield 250 basis points over the comparable Treasury yield. The bonds feature an unspecified make-whole call.
Most of the proceeds from the deal, which is underwritten by Barclays Capital, will go toward financing the PHX Sky Train, which is designed to connect Phoenix Sky Harbor International Airport terminals with a light-rail station, parking lot, and car rental outlet. The system is expected to carry over 35 million riders annually.
The bonds are secured by revenue collected by the airport, which expects to report almost $100 million in revenue available to pay debt service next year. That’s enough to cover the costs of repaying interest and principal 1.8 times over.
Moody’s Investors Service rates the deal A1, and Standard & Poor’s rates it A-plus.
Another major negotiated deal this week is the Ohio Water Development Authority’s $451.4 million revenue bond sale expected to price Wednesday.
The agency, which is rated triple-A by Standard & Poor’s and Moody’s, has not determined the breakdown of tax-exempt and Build America Bonds for the deal. Morgan Stanley is underwriter.
In order to be eligible for federal aid for a pollution control fund that issues loans to communities, Ohio has to match certain federal contributions to the fund, at a rate of at least 20 cents per federal dollar.
The state expects loans from the fund to be used to build a wastewater treatment plant and implement other pollution control programs.
The bonds will be repaid by the money received when the recipients of loans from the fund repay them.
The biggest deal in the competitive market is a $412 million sale by Portland, Ore., secured by revenues from the city’s sewer system.
Moody’s rates the bonds Aa3, and Standard & Poor’s rates them AA. The bonds will begin maturing next year, with a final maturity in 2035.
The money Portland is borrowing will be used mostly to pay for improvements to the city’s sewage treatment systems and stormwater programs, among other things.
The sewer system last year produced $156.7 million in revenue applicable for paying debt service, enough to cover $119.6 million in debt-service costs.
In a report, John Dillon, chief municipal bond strategist at Morgan Stanley Smith Barney, wrote: “ Beneath the quiet exterior of the normally staid municipal bond market rages an epic battle between absolute yield and relative value, as many market participants bear witness to the carnage.”
For over a week, the market has essentially been trading sideways with no significant gains or losses to report in terms of yields, as 10-year maturity top quality bonds reside at record lows, he wrote.
“When asked about the conflict on a recent afternoon, one trader remarked, 'Well, there’s just not much going on.’ ” Dillon wrote. “And there you have it. Is this the proverbial tempest in a teapot? We don’t believe so, though we do concede that the excitement level is approaching that of a heated chess match.”
Dillon advised market participants to consider taking advantage of the recent market strength to prepare their bond portfolios for what could be “a very interesting balance of the year.”
The economic calendar was light Monday.
