The municipal market was unchanged with a slightly weaker tone yesterday amid fairly light secondary trading activity and ahead of a substantial slate of new issuance later this week.
“The market is kind of quiet,” a trader in New York said. “People are coming in and liquidating some positions, making some profits. Basically, the bids are coming in sort of on the softer side. Not much by way of secondary trading. Pretty much a quiet Monday as we get towards the summer. The market has been flat.”
A trader in Los Angeles said that, while sizeable new issues are on the horizon, yesterday’s market lacked new deals or major trades to “give us some direction.”
“We’re sort of drifting, watching Treasuries,” he said. “It may improve in the course of the week, with some new supply coming in. I think we will eventually start getting this June reinvestment money back into the market. It will give us a bit of a boost. Right now, though, it is quiet.”
The Treasury market was mixed yesterday. The benchmark 10-year Treasury note finished at 3.18% after opening at 3.20%. The 30-year Treasury bond finished at 4.12% after opening at 4.13%. The two-year Treasury note finished at 0.74% after opening at 0.72%.
The Municipal Market Data triple-A scale yielded 2.81% in 10 years and 3.68% in 20 years yesterday, following levels of 2.81% and 3.67% on Friday. The scale yielded 4.00% in 30 years yesterday, versus 3.99% on Friday.
Friday’s triple-A muni scale in 10 years was at 87.8% of comparable Treasuries and 30-year munis were at 96.6%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 97.6% of the comparable London Interbank Offered Rate.
Billion-dollar deals will make a comeback this week when both Los Angeles County and Cook County, Ill., test the municipal waters, hoping for strong investor demand in the spring rollover season.
The big deals are expected to arrive amid an estimated slate of $8.54 billion in new volume, according to Ipreo LLC and The Bond Buyer. The supply is more than triple last week’s skimpy post-holiday fare, which was revised down to $2.29 billion, according to Thomson Reuters, after originally being pegged at $4 billion. The supply is nearly $1 billion more than the revised $7.69 billion priced the week of May 24.
The Los Angeles County deal is expected to include $1.5 billion of tax and revenue anticipation notes maturing in 2011 and rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch Ratings.
Lead underwriter Citi is planning to price the short-term offering tomorrow or Thursday. The notes are secured by a pledge of unrestricted taxes, income, revenue, and cash receipts.
The Cook County deal will pump an estimated $1.05 billion of GOs, available as both tax-exempt and taxable securities, into the Midwest market.
Morgan Stanley is expected to price Cook county’s largest tranche — $400.2 million of GO refunding bonds in Series 2010 A — tomorrow with ratings of Aa2 from Moody’s and AA from Standard & Poor’s and Fitch.
Additionally, the nation’s second-largest county will sell two separate series of taxable debt on Thursday, the first being $331.8 million of taxable GO BABs scheduled for pricing by Loop Capital Markets.
There will also be $322.3 million of traditional taxable GO pension fund refunding bonds structured as Series B and C and senior managed by Morgan Stanley.
There will be no shortage of offerings in the Northeast market as a pair of highly recognizable credits will issue fairly sizable offerings this week.
New York City is slated to sell $780 million of taxable GO BABs and $20 million of tax-exempt GOs tomorrow in a negotiated deal senior managed by Morgan Stanley. The city’s GO debt is rated Aa2 by Moody’s, and AA by Standard & Poor’s and Fitch.
Connecticut will market $600 million of new-money and refunding GOs in a JPMorgan-led deal scheduled for pricing tomorrow on the heels of a downgrade last week from Fitch, which downgraded $13.7 billion of the state’s outstanding GOs to AA from AA-plus. Fitch rates the new bonds AA, and revised its outlook to stable from negative.
Moody’s rates the state GOs Aa2, while Standard & Poor’s rates it AA. Both agencies give stable outlooks.
In the new-issue market yesterday, First Southwest Co. priced $138.1 million of bonds for Denton County, Tex., including $100.9 million of taxable BABs.
The BABs mature from 2020 through 2025, with a term bond in 2030. Yields range from 4.249% in 2020, or 2.76% after the 35% federal subsidy, to 5.838% in 2030, or 3.79% after the subsidy, all priced at par. The bonds, which are callable at par in 2020, were priced to yield between 110 and 188 basis points over the comparable Treasury yield.
Bonds from the $37.2 million series of tax-exempt permanent improvement bonds mature from 2011 through 2019, with yields ranging from 0.73% with a 2% coupon in 2012 to 2.85% with a 3.125% coupon in 2019. Bonds maturing in 2011 were decided via sealed bid. The bonds are not callable.
The credit is rated triple-A by both Moody’s and Standard & Poor’s.
Priti Patnaik contributed to this column.