The municipal market was unchanged to slightly firmer Monday amid light to moderate secondary trading activity.
“We’re mostly flat, but it does feel a touch firmer,” a trader in New York said. “We’re maybe picking up a basis point or so in the belly of the curve, if anything.”
“There wasn’t a ton of trading, but business was getting done,” a trader in Los Angeles said. “Still, most people seemed to be on the sidelines for now. The tone was a little bit firmer, but we’re pretty much unchanged.”
The Municipal Market Data triple-A 10-year scale fell two basis points Monday to 2.97%, the 20-year was unchanged at 4.26%, and the scale for 30-year bonds remained at 4.69%.
“Another month of re-investment is upon us and so is another month of light primary issuance,” Randy Smolik wrote in the daily MMD commentary. “Despite lackluster trading, a reach for high-grades in the belly of the curve still was evident.”
“Today’s secondary did not provide much of an array of paper to buy,” Smolik continued. “It is logical that many buyers were sidelined because of the lack of offerings, waiting to be more active once supply is priced, like the $300 million Louisiana GO competitive loan selling Tuesday. But despite the thin secondary, some buyers did capitulate.”
Monday’s triple-A muni scale in 10 years was at 86.8% of comparable Treasuries and 30-year munis were at 104.5% according to MMD.
Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 109.8% of the comparable London Interbank Offered Rate.
Treasuries were somewhat mixed Monday. The benchmark 10-year note was quoted at 3.42% after opening at 3.41%. The 30-year bond was quoted at 4.49% after opening at 4.50%. The two-year note was quoted at 0.70% after opening at 0.72%.
An already-skimpy municipal market is expected to see volume levels plummet even further this week when a paltry $1.79 billion of new issuance trickles into the primary, according to Ipreo LLC and The Bond Buyer.
Last week, under much the same circumstances, a revised $5.95 billion came to market, according to Thomson Reuters, $2 billion less than the typical weekly average of $8 billion.
On Tuesday, Louisiana is slated to sell $300 million of unlimited-tax general obligation bonds that it hopes will stand out among the crimped volume.
Scheduled for competitive bidding, the deal is structured to mature from 2011 to 2030.
It is rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
In other activity, $178.5 million from the Michigan State Hospital Finance Authority is expected to be priced by Citi on Tuesday.
The project revenue and refunding bond deal is structured as a one-year put maturing on March 1, 2012.
The credit is rated Aa1 by Moody’s and AA-plus by Fitch.
The Illinois Finance Authority is readying $131.6 million of student housing revenue bonds slated for pricing by RBC Capital Markets on Wednesday. Proceeds will finance projects at Illinois State University.
The offering is rated Baa3 by Moody’s and BBB by Standard & Poor’s.
Maryland will come to market with $100 million of GO debt.
The bonds will be priced by Siebert Brandford Shank & Co. and are rated triple-A by all three major rating agencies.
In a weekly report, George Friedlander, a municipal strategist at Citi, wrote: “The municipal bond market continued the powerful rally back from the peak in yields in mid-January.”
“The positive feedback loop that pushed yields ever higher for roughly 10 weeks through Jan. 14 has been broken, leaving those who feared the worst standing on the sidelines in many cases,” he wrote. “In the longer-term maturity range we favored at the market bottom, yields on triple-A paper are down sharply: nearly 50 basis points in 20 years, 43 basis points in 15 years. We are thus suggesting a bit more caution now, but would still put cash to work selectively.”
In economic data released Monday, personal consumption expenditures increased 0.2% in January as income rose 1.0%, the largest gain in 20 months.
Core PCE, which excludes food and energy costs and is the Federal Reserve’s preferred measure of inflation, increased 0.8% in January from the year earlier and was revised higher for December to a 0.8% rise from a 0.7% gain. The figure is still a record low on data stretching back to 1960.
The monthly PCE gain was the smallest since June. Core PCE rose 0.1% in January.
Economists expected incomes and expenditures would both rise 0.4% for the month, according to the median estimate from Thomson Reuters. The core PCE rate was expected to gain 0.1%.
The Chicago Purchasing Managers’ Business Barometer rose to 71.2 in February from 68.8 in January. The data is compiled on a seasonally adjusted basis. An index reading below 50 signals a slowing economy, while a level above 50 suggests expansion.
Economists polled by Thomson Reuters predicted a 67.5 reading for the indicator.
Pending home sales slipped 2.8% to a reading of 88.9 in January. Economists polled by Thomson predicted a 2.2% increase for the index.
