The municipal market remained unchanged yesterday as participants eased their way back from the three-day holiday weekend."It's going to take a while for people to get back into the swing of things, and we're pretty quiet and pretty flat right now," a trader in New York said. "This is pretty much par for the course coming back from a long weekend, so nothing unusual. But it's pretty quiet today, and I'd expect it to remain fairly quiet until at least the middle of the week, maybe even next week."
"There's not a whole lot going on," a trader in Los Angeles said. "It's pretty quiet, fairly unchanged. There's not a lot of business getting done, unless people have paper they really want to move for whatever reason."
The Treasury market was narrowly mixed yesterday. The yield on the benchmark 10-year note, which opened at 3.50%, was quoted near the end of the session at 3.51%. The yield on the two-year note was quoted near the end of the session at 0.95% after opening at 0.98%. The yield on the 30-year bond, which opened at 4.32%, was quoted recently at 4.36%.
As of Thursday's close, the triple-A muni scale in 10 years was at 92.5% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 108.1% of comparable Treasuries. Also, as of the close, 30-year tax-exempt triple-A rated general obligation bonds were at 112.8% of the comparable London Interbank Offered Rate.
With much of the municipal market still in holiday mode this week, the short-term market will dominate the official first full week of the third quarter with a planned $700 million note sale from the New York State Thruway Authority.
In the long-term market, new-issue activity will all but fizzle out as only a few relatively large deals are expected, the largest of which is $210 million of revenue debt from the California Infrastructure and Economic Development Bank.
On the heels of a sparse, four-day trading week ahead of the July 4 holiday, this week there is an estimated $3.83 billion arriving in the negotiated and competitive markets combined, according to Ipreo LLC and The Bond Buyer.
This week's Thruway Authority general revenue bond anticipation note sale is planned for pricing tomorrow by Citi. The notes, which mature in 2011, are expected to be rated MIG-1 by Moody's Investors Service and SP-1-plus by Standard & Poor's.
In California, the infrastructure and development bank offering will be priced by RBC Capital Markets LLC tomorrow. The bonds, which carry ratings of A2 from Moody's, A from Standard & Poor's, and AA-minus from Fitch Ratings, are structured to mature serially from 2012 to 2024 with term bonds available in 2034 and 2039.
In a weekly report, Morgan Stanley Smith Barney's George Friedlander wrote: "Supply has remained ample, but has been well matched by powerful demand from the household sector."
"Direct retail buying has eased a bit recently, but muni bond fund flows continue to be at all-time records by a wide amount," he wrote. "Over time, we expect the provisions in the stimulus package targeted at supporting buying by banks and property and casualty insurance companies during 2009-10 to also provide some additional support. All in all, we expect the muni market to remain in a trading range for now, with ample supply matched by solid demand."
Friedlander also said in the report that new issuance for the first half of 2009 is down from the same period in 2008, but "several other factors must be noted, in our view."
"The drop in issuance all occurred on the variable-rate side, and then some," hewrote. "Variable-rate demand note issuance was down from $75 billion last year to $15 billion in 2010, as issuers continue to find it exceedingly difficult to find the liquidity facilities they need, and in some cases the credit enhancement, in order to access the tax-exempt money market. In June alone, VRDN issuance was down a whopping 88%."
"Indeed, fixed-rate issuance remains up sharply, as does fixed-rate tax-exempt issuance, despite the incursion of taxable Build America Bonds," he said. "For the six months, total fixed-rate issuance is up 15.3%, from $148.9 billion to $171.6 billion. The taxable component of total issuance is up by about $9 billion, from $16 billion to $25 billion. So, tax-exempt fixed-rate issuance is still up about $14 billion versus last year, assuming that virtually all of the taxable issuance came in fixed-rate form."
Furthermore, Friedlander wrote that "it is also important to note that in 2008, issuance was very much front-loaded, with issuance falling sharply as the refinancing of auction-rate issues slowed, and then the entire market took a hit as capital market liquidity virtually disappeared."
"Only 15% of total issuance occurred in the fourth quarter," he wrote. "So, from here on in, we expect year-over-year comparisons to get stronger, possibly by a wide amount. The proportion of taxable BABs is also likely to grow, to be sure, but by year-end, we have little doubt that fixed-rate tax-exempt issuance will still be up versus last year, by a significant amount."
Activity in the new-issue market was light yesterday.
In economic data released yesterday, the Institute for Supply Management's non-manufacturing business activity composite index was 47.0 in June, up from 44.0 in May. Economists polled by Thomson Reuters had expected a 45.6 level.