The municipal market was slightly weaker yesterday in light activity. Traders said tax-exempt yields were higher by one or two basis points."We're a little off, but it's quiet," a trader in New York said. "There's not a whole lot going on, coming off the weekend, but we're probably off a basis point or two."
"I don't think there was really a strong direction in the market today," a trader in Los Angeles said. "We were probably off a little bit, but I think it was pretty close to flat. Maybe a basis point off in spots, weaker tone, but I don't think we were all that far from flat."
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year note, which opened at 3.64%, was quoted near the end of the session at 3.62%. The yield on the two-year note was quoted near the end of the session at 0.98% after opening at 0.99%. The yield on the 30-year bond, which opened at 4.53%, was quoted near the end of the session at 4.52%.
As of Friday's close, the triple-A muni scale in 10 years was at 81.9% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 102.9% of comparable Treasuries. Also as of Friday's close, 30-year tax-exempt triple-A general obligation bonds were at 107.9% of the comparable London Interbank Offered Rate.
Trades reported by the Municipal Securities Rulemaking Board yesterday showed some losses. Bonds from an interdealer trade of California 5.25s of 2038 yielded 5.68%, up one basis point from where they traded Friday. A dealer sold to a customer Clark County, Nev., taxable Build America Bonds, 7.05s of 2029 at 6.54%, two basis points higher than where they were sold Friday. Bonds from an interdealer trade of Florida Housing Finance Corp. 4.75s of 2027 yielded 5.32%, one basis point higher than where they traded Friday. A dealer sold to a customer Illinois Municipal Electric Agency taxable BABs, 6.83s of 2035 at 6.71%, up one basis point from where they traded Friday.
Bonds from an interdealer trade of taxable Oregon 5.89s of 2027 yielded 6.25%, one basis point higher than where they traded Friday. A dealer sold to a customer California Educational Facilities Authority 4.75s of 2037 at 5.15%, two basis points higher than where they were sold Friday. A dealer sold to a customer Florida State Board of Education 5s of 2029 at 4.65%, even with where they traded Friday. Bonds from an interdealer trade of New Jersey 5s of 2025 yielded 3.86%, up one basis point from where they traded Friday.
Municipalities plan a moderate slate of new deals this week during the seasonally slower summer period. About $4.65 billion of bonds are scheduled for sale this week, according to information from Ipreo LLC and The Bond Buyer, compared with the $5.16 billion Thomson Reuters said sold last week.
The visible supply of bonds, which measures bonds set for sale in the next 30 days, is a relatively light $11.19 billion.
On the negotiated calendar, the Pennsylvania State Turnpike is bringing the biggest issue with $956 million of subordinated revenue bonds. Citi is lead manager, and the deal is expected to be priced today. Moody's Investors Service rates the issue A2 and Standard & Poor's rates it A-minus.
The next-biggest negotiated deal is coming from the New York City Transitional Finance Authority, which is selling $800 million of tax-exempt future tax-secured bonds. The underwriter is JPMorgan, with Public Resources Advisory Group as financial adviser. The TFA is also selling a $100 million of taxable future tax-secured bond. That issue has maturities ranging from 2017 to 2021.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: "The seasonal July rally in municipals was more formally interrupted last week as stronger economic indicators pushed Treasury yields substantially higher, giving pause to muni buyers and market makers.
"Tax-exempt yields rose slightly, in particular at the very long end where the recent affinity with low coupon bonds may be at an end," he wrote. "Also affecting muni performance were a series of very difficult releases on state and local finances and regional unemployment. These, along with a resilient stock market, may continue to press muni bonds weaker, although a more modest summer calendar and staffing may impel accounts to keep trading volumes, and thus price discovery, low.
"The notable upside this week is a potential budget agreement in California that should help related bonds rally somewhat but, we warn, does not signal the end to the state's financial crisis," Fabian added. "Otherwise, the municipal market should continue to benefit from increased bank buying, superlative mutual fund inflows, and an apparently stronger bid from retail investors."
Morgan Stanley Smith Barney's George Friedlander wrote in his own weekly report: "We expect the muni market to continue to be well-supported, in light of continuing strong household sector demand, modest tax-exempt supply, and the painfully low yields on shorter intermediate paper."
"We are concerned, however, that ongoing headline-generating budgetary problems and downgrades, if they occur, could lead to a rebound in credit spreads, which have come in quite sharply since April," he wrote. "The time to take steps to reduce the potential impact of this pattern, if it occurs, could not be better than the present, in our view."
In economic data released yesterday, the composite index of leading economic indicators gained 0.7% in June. LEI increased a revised 1.3% in May. Economists polled by Thomson Reuters predicted LEI would be up 0.5% in the month.