The municipal market was mostly unchanged yesterday in light trading activity as investors returned following Thursday’s Thanksgiving holiday and Friday’s abbreviated session.
“It’s pretty quiet so far,” a trader in New York said. “People are sort of easing their way back from the weekend, which was a long weekend for a lot of people. The market was open Friday, but there was really nothing going on. A lot of people were out. Today, though, it’s not totally dead. I think people will get stuff done if they need to, but it’ll probably take a day or so to get something going. ”
“If there’s a tone out there at all, it’s firmer, but I’d call it flat overall,” a trader in Los Angeles said. “You can maybe pick up a basis point or two in spots, depending on the credit and what part of the curve you’re talking, but for the most part it’s just flat and pretty quiet.”
The Treasury market showed minor losses yesterday. The yield on the benchmark 10-year note opened at 3.20% and was also quoted near the end of the session at 3.20%. The yield on the two-year note opened at 0.68% and was quoted near the end of the session at 0.66%. The yield on the 30-year bond was quoted near the end of the session at 4.20% after also opening at 4.20%.
Yesterday’s Municipal Market Data triple-A scale yielded 2.78% in 10 years, 3.73% in 20 years, and 4.28% in 30 years. Friday’s scale yielded 2.81% in 10 years and 3.73% in 20 years, following levels of 2.81% and 3.75%, respectively, on Wednesday, and levels of 2.81% and 3.75%, respectively, on Tuesday. The scale yielded 4.28% in 30 years Friday, after Wednesday’s level of 4.29% and Tuesday’s 4.29% level.
As of Friday’s close, the triple-A muni scale in 10 years was at 86.1% of comparable Treasuries, according to MMD, while 30-year munis were 101.4% of comparable Treasuries and 30-year tax-exempt triple-A rated general obligation bonds were at 106.2% of the comparable London Interbank Offered Rate.
The Municipal Securities Rulemaking Board reported 7,322 trades of 3,668 separate issues for volume of $3.13 billion during Friday’s abbreviated session. Most active was New Jersey Building Authority 4s of 2020, which traded 32 times at a high of par and a low of 98.332.
Trades reported by the MSRB yesterday showed little movement. Bonds from an interdealer trade of taxable Illinois 5.1s of 2033 yielded 5.87%, even with where they traded Friday. A dealer sold to a customer taxable California Build America Bond 7.55s of 2039 at 7.26%, even with where they were sold Friday.
A dealer sold to a customer Dormitory Authority of the State of New York 4.5s of 2035 at 4.62%, even with where they were traded Friday. Bonds from an interdealer trade of insured New York State 5s of 2023 yielded 4.06%, even with Friday.
Municipalities are preparing a decent slate consisting heavily of taxable bonds for sale this week following a holiday-shortened week with little activity.
Issuers plan to sell $7.07 billion of debt this week, according to data from The Bond Buyer and Ipreo. That consists of $6.02 billion in the negotiated market and $1.2 billion in the competitive market. Last week, issuers sold just $2.39 billion of bonds, according to Thomson Reuters.
BABs will once again dominate the biggest batches of debt floated by municipalities. Among negotiated deals, the largest sale will be by the University of California Regents, which oversees the 10-campus public university system in the Golden State.
The university system plans to sell $539 million of BABs secured by revenue from the system’s medical center. Barclays Capital is underwriting the deal, which is expected to price Thursday.
Another big BAB deal comes from Massachusetts, which is planning to sell $500 million of taxable GOs underwritten by Goldman, Sachs & Co. That deal prices today.
In the new-issue market yesterday, Estrada Hinojosa & Co. priced $30 million of bonds for Beaumont, Tex.
The bonds mature from 2011 through 2029, with a term bond in 2034. Yields range from 0.95% with a 2% coupon in 2011 to 4.80% with a 4.7% coupon in 2034.
The bonds, which are callable at par in 2019, are insured by Assured Guaranty Corp. The underlying credit is rated AA-minus by Standard & Poor’s.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote: “As expected, the holiday week brought little change to the municipal market.”
“Yields have trended somewhat lower in the last few weeks as institutional buying accelerated ahead of year-end,” Fabian wrote. “The more institutional presence is signaled by much tighter credit spreads among earlier maturity bonds and some stability in spreads at intermediate and longer maturities. This creates some difficulty for buyers, because, while December is traditionally very favorable for bonds, high-grade yields are already quite low and credit spreads are overly aggressive with respect to growing concerns over state and local credit quality.”
“Further, stretching for yield into story-bond positions like California or Illinois may reasonably compromise liquidity over the next six months,” Fabian said. “But the downside in taking these risks is also likely limited as the muni market should remain within ranges so long as money market rates are held at very low levels. This week, a larger calendar is apt to be well received, helping bonds to remain firm.”
In economic data released yesterday, the Chicago Purchasing Managers’ Business Barometer rose to 56.1 in November from 54.2 in October. Economists polled by Thomson Reuters predicted a 53.7 reading for the indicator.
