Ahead of a sizeable new-issue calendar in the offing this week, the municipal market meandered during the first trading session, ending largely flat.
Traders said activity was on the light side of the ledger with tax-exempts unchanged yesterday. This followed a string of trading sessions last week where lackluster performance was the order of the day.
"We're pretty quiet right now," a trader in New York said. "We're coming off a bit of a rough week, but things did stabilize and even improve a tiny bit right at the end, plus we're pretty flat this morning, so maybe we won't cheapen up much more this week. I'm not sure that we're going to really firm up, but with the supply we've got coming again this week, I think just not cheapening would be a good thing."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. Bonds from an interdealer trade of New York State 5s of 2024 yielded 5.17%, even with where they traded Friday. Bonds from an interdealer trade of Port Authority of New York and New Jersey 5s of 2038 yielded 5.08%, even with where they were sold Friday. Bonds from an interdealer trade of insured Los Angeles Unified School District 5s of 2022 yielded 4.95%, even with where they traded Friday.
"There wasn't a whole lot going on today," a trader in Los Angeles said. "Secondary trading was pretty quiet, the new-issue calendar was light, and there was virtually no movement to the scale. I'd say we're a flat unchanged. There is a bit of supply coming this week, though, so we'll see how the rest of the week goes."
The Treasury market showed mild losses yesterday. The yield on the benchmark 10-year note, which opened at 2.87%, finished at 2.88%. The yield on the two-year note was quoted near the end of the session at 0.96% after opening at 0.95%. The yield on the 30-year bond, which opened at 3.55%, was quoted near the end of the session at 3.56%.
As of Friday's close, the triple-A10-year maturity was at 117.0% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 138.6% of comparable Treasuries. As of the close Friday, 30-year tax-exempt triple-A general obligation bonds were at 150.6% of the comparable London Interbank Offered Rate.
Matt Fabian, managing director at Municipal Market Advisors, wrote in a weekly report that "prices in the municipal bond market have weakened in the last few weeks, with investors growing shy over very low absolute yields."
"With new-issue supply growing, underwriters of new bond sales have seen more risk in being caught with unsold bond proceeds," he wrote. "Thus, new issues last week were priced cheaply to sell quickly, but this forced benchmark muni bonds and statement evaluations cheaper as well. While our market still lacks persistent demand from institutional buyers - so yields may continue to rise in the near term, these concessions by bond sellers have created the best value in shorter maturity high-grade muni bonds all year."
This week, Fabian said, the new-issue calendar, "at least by the standards of 2009, is substantial, in theory putting pressure on prices, but the rapid evolution of events in the financial markets make performance expectations impossible."
An $800 million sale of general revenue bonds from the University of California Regents is the largest deal scheduled in the primary market and will be part of an estimated $5.15 billion in total negotiated and competitive sales planned for pricing this week, according to Thomson Reuters.
Last week, the muni market had its most active new-issue calendar of the year, with well over $5 billion coming to market.
George Friedlander, managing director and fixed-income strategist at Citi, wrote in a weekly report that last week's "heavy calendar, probably combined with a perception that intermediate maturity yields were too low, pushed five to 10-year maturity high-grade yields up once again."
"While we continue to prefer the 12-20 year range, where the slope of the yield curve remains quite steep, at least yields in the 7-12 year range have bounced enough to make those yields more palatable, particularly as one moves away from the very strongest credits," Friedlander wrote. "Assured Guaranty Corp. and Financial Security Assurance Inc.-insured 10-year paper with a solid single-A underlying rating now yields around 4%, and A-rated GO's are in the 4.5% range. The availability of attractive yields on single-A intermediates reflects the fact that the 'credit curve' in the municipal bond market remains very wide by historical standards, and very negatively sloped."
The University of California deal is expected to be priced Thursday, following a retail order period tomorrow by senior book-runner Barclays Capital. The deal consists of three series of bonds, one of which is taxable. The preliminary structure was for fixed rate bonds maturing from 2010 to 2039. The bonds are rated Aa3 by Moody's Investors Service and AA by Standard & Poor's.
Also, a handful of financings in the Northeast - including two large deals out of Pennsylvania - will add to the volume that has been increasing in the region in recent weeks.
The University of Pittsburgh will issue $435 million of higher education debt, which consists of Series A refunding bonds, and Series B capital project bonds in a structure of serial and term bonds. The deal, which has ratings of Aa2 from Moody's and AA from Standard & Poor's, is expected to be priced by Barclays today. The structure will include fixed-rate bonds with maturities from 2010 to 2031.
The economic calendar was light yesterday. However, later this week, a slate of economic data will be released. Today, January wholesale inventories are due, followed Thursday by initial jobless claims for the week ended March 7, continuing jobless claims for the week ended Feb. 28, February retail sales, and January business inventories. On Friday, February import prices and the preliminary March University of Michigan consumer sentiment index will be released.
Economists polled by Thomson Reuters are predicting a 1.0% drop in wholesale inventories, 645,000 initial jobless claims, 5.130 million continuing jobless claims, a 0.5% drop in retail sales, a 0.2% dip in retail sale excluding autos, a 1.0% decrease in business inventories, an 0.8% decline in import prices, and a 55.0 Michigan sentiment index.
