The municipal market was unchanged to slightly weaker yesterday, following the Treasury market.
"We were following the Treasury, but lagging behind it," a trader in Los Angeles said. "We were weaker by, at most, two or three basis points. However, I'd put it more like one or two [basis points]. There wasn't much activity, though. It was a fairly quiet Monday."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed some losses. Bonds from an interdealer trade of insured Nevada 5s of 2026 yielded 4.65%, even with where they were traded Friday. A dealer sold to a customer Ohio's Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 at 6.72%, up one basis point from where they were sold Friday. A dealer sold to a customer New York's Liberty Development Corp. 5.25s of 2035 at 6.72%, one basis point higher than where they were sold Friday. A dealer sold to a customer insured Massachusetts Health and Educational Facilities Authority 5s of 2035 at 5.65%, two basis points higher than where they traded Friday.
"There's a little bit of weakness, but it's the tone more than anything else," a trader in New York said. "I don't know if yields on the scale are going any higher. If anything, maybe a basis point. But there's a weaker tone."
The Treasury market showed losses yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.47%, finished at 3.56%. The yield on the two-year note was quoted near the end of the session at 1.94%, after opening at 1.82%.
The economic calendar was light yesterday.
In economic data slated for release this week, wholesale inventories and wholesale sales for February will be released tomorrow. This will be followed Thursday by initial jobless claims for the week ended April 5, and continuing jobless claims for the week ended March 29, and followed Friday by March import prices and the preliminary April University of Michigan consumer sentiment index.
Economists polled by IFR Markets are predicting a 0.5% rise in wholesale inventories, a 0.2% uptick in wholesale sales, 386,000 initial jobless claims, 2.915 million continuing jobless claims, a 1.8% climb in import prices, and a 68.0 level in the Michigan sentiment index.
Matt Fabian, managing director at Municipal Market Advisors, wrote in a weekly report that "municipals have found some positive price momentum, but this may be unsustainable in the near-term."
"Last week, munis wound up richer across a flatter curve as the turn of the quarter invited new cash into our sector; buyers flocked to value-priced new issues amid an otherwise illiquid secondary market; market concern over excess supply from [auction-rate security] restructurings appeared to ebb; and there was a noticeable draft from the Treasury market's post-jobs flight to quality surge on Friday," he wrote.
"Demand momentum has been strongest at the long end of the curve, although the market appears generally rich from eight years onward, and our measure of intermediate value remains at 'sell,' " Fabian wrote. "In recent years, continued appreciation through current levels was underwritten by leveraged demand from tender option bond programs that is very difficult to hope for this time around."
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that "demand from direct retail buyers of munis remains strong, with considerable activity aimed at lengthening of existing portfolios via swaps and outright buying of longer-maturity bonds for cash."
"Both patterns, we believe, are being supported by a variety of factors, including the very steep muni yield curve, increased resistance to products that are considered higher in risk, including stocks and hedge/fund private equity investments, and the recognition that munis remain extremely cheap in comparison with historical benchmarks by historical standards," he wrote. "In addition, for much of the past month, retail demand has been supported by the availability of yields of 5% or higher on par paper in maturities as short as 20 years or so."
A billion-dollar deal in the Far West region and a bevy of new deals in the Northeast will lead this week's primary market calendar, which includes $6.68 billion of new volume compared with a revised $8.01 billion last week.
A $1.75 billion California general obligation issue planned for pricing by Morgan Stanley on Thursday will give retail investors first crack at the bonds today and tomorrow. The new-money and refunding deal, which will mature from 2009 to 2038, will be uninsured and carries ratings of A1 from Moody's Investors Service and A-plus from Standard & Poor's and Fitch Ratings.
Also, although its GO sale is not until next week, Connecticut will kick off a rare, week-long retail order period for its $2 billion sale of taxable GOs ahead of a pricing on April 14. The proceeds will finance the state's teacher's retirement fund.
In the new-issue market yesterday, Illinois' Lake County Forest Preserve District competitively sold $35 million of general obligation limited tax land acquisition bonds to UBS Securities LLC, with a true interest cost of 4.45%. The bonds mature from 2009 through 2027, with yields ranging from 2.00% with a 3.25% coupon in 2009 to 4.66% with a 5% coupon in 2027. Bonds maturing in 2026 were not formally re-offered. The bonds, which are callable at par in 2018, are rated triple-A by both Moody's and Standard & Poor's.