The municipal market was slightly firmer yesterday, opening the week improved after last week's deluge of new-issue supply pushed yields higher to a degree.
Traders said tax-exempt yields were lower by two or three basis points.
"We're doing a little better today," a trader in New York said. "We kind of survived the supply last week, and there's about half the calendar on the way this week. We're up a couple basis points pretty much across the board. Maybe a little more movement out long, but overall, bonds are cheaper by about two or three basis points. There's not too much activity out there, but things are trading, people are working, and some deals are getting done."
"I'm not seeing a whole lot of trading activity, but it's noticeably firmer," a trader in San Francisco said. "I think we're about two basis points or so better on the day, but it's still fairly quiet."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 2.75%, was quoted near the end of the session at 2.71%. The yield on the two-year note was quoted near the end of the session at 0.86% after opening at 0.91%. The yield on the 30-year bond, which opened at 3.61%, was quoted near the end of the session at 3.60%.
As of Friday's close, the triple-A scale in 10 years was at 117.4% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 134.0% of comparable Treasuries. Also, as of the close Friday, 30-year tax-exempt AAA-rated general obligation bonds were at 147.4% of the comparable London Interbank Offered Rate.
The municipal market faces a calendar of $4.59 billion of new debt this week, smaller but still sizable, after devouring the $6.5 billion California general obligation sale last week with only a slight uptick in yields, according to data from Thomson Reuters.
That ability to absorb bonds was key to the sale of the more than $81 billion in municipal debt sold in the quarter through last week, as the market enters the final days of the first quarter. Last week, the market welcomed a revised $11.24 billion in new volume, inflated by the behemoth California sale on Thursday priced by Merrill Lynch & Co., which sparked $3.2 billion in orders during the first two days of the retail order period and prompted underwriters to price the deal a day early for institutions due to the demand.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that the California deal "was a highly successful showing by our industry that demand is both deep and broad at yields only modestly higher than pre-crisis standards."
"We also note the strong bid from individuals and institutional buyers, despite triple rating downgrades and very likely worsening of the state's budget difficulties in the near term," Fabian wrote. "On the other hand, the California sale pre-empted much other market activity; more trading might have driven more widespread losses as the month and quarter wind down."
Additionally, Philip Fischer, municipal strategist at Merrill Lynch, wrote in a weekly report that, "in a week when the huge Treasury calendar dominated the macro environment, the state of California issue tested the depth of liquidity available in the muni market."
"The Treasury issuance did not crowd out munis," he wrote. "The California issue showed that properly structured and properly priced, the muni market can clear even the largest issues. Liquidity comes at a price, however, and both the Treasury and muni market had negative total returns for the week."
In the new-issue market yesterday, Raymond James & Co. priced for retail investors $300 million of assessment revenue bonds for the Louisiana Citizens Property Insurance Corp. in four $75 million subseries. Bonds from subseries C-1 mature from 2012 through 2026, with yields ranging from 3.57% with a 3.125% coupon in 2012 to 6.43% with a 6.25% coupon in 2026. The bonds are callable at par in 2018. Bonds from subseries C-2 mature in 2026 and were not formally re-offered, and are callable at par in 2026.
Bonds from subseries C-3 mature in 2025 and were not formally re-offered, and are callable at par in 2018. Bonds from subseries C-4 mature in 2009, 2010, 2011, and 2024, yielding 2.75% in 2010 and 3.30% in 2011, both with 3% coupons. Bonds maturing in 2009 and 2024 were not formally re-offered. The bonds are callable at par in 2013. All the bonds are insured by Assured Guaranty Corp. The underlying credit is rated Baa2 by Moody's Investors Service and A-minus by Standard & Poor's.
Morgan Stanley priced for retail investors $176.3 million of clean water state revolving fund revenue bonds for the Virginia Resources Authority, ahead of institutional pricing today. The bonds mature from 2012 through 2031, with yields ranging from 1.57% with a 3% coupon in 2012 to 4.86% with a 4.8% coupon in 2029. Bonds maturing in 2023, from 2025 through 2028, and in 2030 and 2031 were not offered during the retail order period. The bonds, which are callable at par in 2019, are rated triple-A by all three major ratings agencies.
JPMorgan priced for retail investors $147.5 million of GOs for the University of Connecticut ahead of institutional pricing today. The bonds mature from 2010 through 2029, with yields ranging from 1.20% with a 2% coupon in 2011 to 4.83% with a 4.75% coupon in 2029. Bonds maturing in 2010 will be decided via sealed bid. The bonds, which are callable at par in 2019, are rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch Ratings.
JPMorgan also priced for retail investors $111.6 million of higher educational facilities second program bonds for the Tennessee School Bond Authority, ahead of institutional pricing today. The bonds mature from 2010 through 2029, with term bonds in 2034 and 2039. Yields range from 1.30% with a 2% coupon in 2011 to 5.10% with a 5% coupon in 2034. Bonds maturing in 2010 will be decided via sealed bid. Bonds maturing from 2020 through 2023, from 2025 through 2028, and in 2039 were not offered during the retail order period. The bonds, which are callable at par in 2019, are rated Aa2 by Moody's AA by Standard & Poor's and Fitch.
The economic calendar was light yesterday.
