The municipal market was quiet and unchanged yesterday amid light secondary trading activity.
“It’s pretty flat,” a trader in New York said. “There’s not a whole lot going on out there, and there’s not a lot of movement. We’re just fairly quiet and unchanged.”
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note opened at 3.59% and finished at 3.65%. The yield on the two-year note opened at 0.81% and finished at 0.86%. The yield on the 30-year bond finished at 4.56% after opening at 4.49%.
Yesterday’s Municipal Market Data triple-A scale yielded 2.98% in 10 years and 3.82% in 20 years, compared to levels of 2.99% and 3.82% on Friday. The scale yielded 4.22% in 30 years yesterday compared to Friday’s level of 4.23%.
As of Friday’s close, the triple-A muni scale in 10 years was at 82.6% of comparable Treasuries and 30-year munis were 93.6% of comparable Treasuries, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 96.4% of the comparable London Interbank Offered Rate.
Issuers in New York and Massachusetts are headed to the primary market with large financings this week earmarked for transportation, environmental, and education purposes as part of a $4.11 billion in expected new volume, according to Ipreo LLC and The Bond Buyer.
In this week’s market, New York’s Metropolitan Transportation Authority and the New York State Environmental Facilities Corp. will lead activity in the Northeast. The MTA is planning to sell $650 million of transportation revenue bonds, including $550 million of taxable, direct-pay Build America Bonds and $100 million of traditional tax-exempt bonds.
Co-senior managers Barclays Capital and Siebert Brandford Shank & Co. will hold a retail order period and take indications of interest for the BABs today before pricing the deal tomorrow.
A $327.1 million offering of clean water and drinking water state revolving fund revenue bonds is on tap from the EFC and also includes BABs.
Siebert is planning to price the deal today with $185.9 million of BABs and $141.1 million of tax-exempts. Both portions are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Elsewhere in the region, the Massachusetts Education Finance Authority is preparing $358.6 million of education loan revenue bonds for pricing by Morgan Stanley tomorrow following a retail order period today.
The deal includes a $316 million series of tax-exempt education revenue bonds, a series of education bonds subject to the alternative minimum tax, and a series of taxable education bonds.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that “with buyers feeling some trepidation over low nominal yields, rich relative valuation to Treasuries, concerns over a diminished BAB presence in 2010, and eroding credit quality, the municipal market experienced a modest correction at the end of January.”
“However, weakness appears to have faded, in particular with the president’s weekend announcement of a proposal to expand the BAB program,” Fabian wrote. “As part of the president’s initial budget plan, this proposal still has a long way to go before becoming law, but it should reassure many long bond holders that BABs are unlikely to go away at year end. It could also reasonably lead to a renewed rally in long tax]exempt paper, on expectations of future scarcity in tax-exempt high grades.”
In economic data released yesterday, personal income rose 0.4%, while personal consumption expenditures increased 0.2% in December, the smallest increase since September.
Core PCE, which excludes food and energy costs, rose 1.5% from a year ago following an unrevised 1.4% increase in November.
Total consumption in November increased by an upwardly revised 0.7%. Personal income was revised higher to a 0.5% rise.
Economists polled by Thomson Reuters expected consumption to increase 0.1% and for incomes to increase 0.2% for the month, according to the median estimate.
Construction spending fell 1.2% in December to a seasonally adjusted annual rate of $902.5 billion, more than twice the median economist estimate.
Total construction spending for November was revised lower to a 1.2% decline from a 0.6% decline initially reported. Economists expected construction spending to fall 0.5% in December, according to the median estimate from Thomson Reuters.
The overall economy grew for the ninth straight time after seven months of contraction, while the manufacturing sector expanded for the sixth time after eighteenth months of contraction, the Institute for Supply Management reported in its monthly report on business.
The ISM index gained to 58.4 in January from 54.9 in December. Economists polled by Thomson Reuters predicted the index would rise to 55.5.