The municipal market was unchanged to slightly firmer yesterday, as investors eased their way back from a long weekend.
"There is a little bit of firmness out there, but it's really been quite slow," a trader in Los Angeles said. "It's to be expected, coming back off a three-day weekend, but there really wasn't much business getting done. There wasn't much going on in the primary market either, so nothing really to pull anybody out of their slumber."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. A dealer sold to a customer New Jersey Health Care Facilities Financing Authority 5.25s of 2038 at 5.32%, even with where they were sold Friday. A dealer sold to a customer Tennessee 4.25s of 2024 at 4.38%, even with where they traded Friday. A dealer sold to a customer New York Metropolitan Transportation Authority 5.125s of 2029 at 4.96%, one basis point lower than where they were sold Friday.
"The front end of the municipal curve is just so rich right now that we're not going to move right in line with Treasuries," a trader in New York said. "The long-end had a weaker tone in the morning, and with little action they've moved back to unchanged. Perhaps there are some firmer trades, but it is not overwhelming."
The Treasury market showed some gains yesterday. The yield on the benchmark 10-year Treasury note, which opened at 3.81%, finished at 3.74%. The yield on the two-year note was quoted near the end of the session at 2.26% after opening at 2.37%. The yield on the 30-year Treasury finished at 4.35% after opening at 4.43%.
In economic data released yesterday, the Institute for Supply Management's business activity composite index dipped to 49.9 in August from 50.0 in July. Economists polled by IFR Markets predicted the index would slip to 49.9.
Spending on construction projects fell 0.6% to a seasonally adjusted annual rate of $1.084 trillion in July as private construction decreased 1.4%, and public construction rose 1.4%. The overall decrease, which was larger than the 0.3% decrease projected by IFR, followed a revised June level of $1.1 trillion, up 0.3% from the prior month.
Later this week, a slate of economic data will be released, highlighted by Friday's release of the August non-farm payrolls report. Also this week, July factory orders will be released today, followed tomorrow by initial jobless claims for the week ended Aug. 30, continuing jobless claims for the week ended Aug. 23, and the August ISM non-manufacturing index.
Economists polled by IFR are predicting a 75,000 loss in non-farm payrolls. They are also forecasting a 0.8% uptick in factory orders, a 1.5% rise in factory orders excluding transportation, 420,000 initial jobless claims, 3.425 million continuing jobless claims, and a 50.0 reading for the ISM non-manufacturing index.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that last week, "very thin, pre-holiday trading perhaps exacerbated recent trends."
"The 6% Louisville, Ky., pricing that initially appeared to disregard all benefit from triple-A bond insurance, but then traded up strongly in the secondary market immediately after, is of note," he wrote. "This transaction reasonably represents an outlier situation, but it could also portend a momentous change in the acceptance of all bond insurance policies. The use of bond insurance as the month begins could be of paramount importance to that industry; insurance penetration remains more likely within 10 years where primary distribution of bonds is more aggressive."
"This week, the new issue calendar begins to perk up, as do the scheduled offerings in the corporate and structured debt markets," Fabian added. "These may put negative pressure on Treasuries, as issuers short governments to hedge pre-settled loan prices. The government market may also be at risk should the new quarter allow fresh capital for risk buying and unwinds of month-end, accounting-related positioning in quality instruments."
A $661 million Massachusetts general obligation offering and a $1.8 billion New Jersey tax and revenue anticipation note sale will compete for investors' attention as the largest deals to be priced as the market gets back to business after the Labor Day hiatus.
The Massachusetts GO sale is part of an estimated $3.03 billion of total long-term, new-issue volume expected to be priced this week, according to Thomson Reuters, and is one of two Massachusetts deals on the relatively skimpy long-term calendar this week. Last week, the municipal market saw a revised $3.36 billion of total long-term new-issue volume.
The Massachusetts GO sale, which is expected to be priced by Citi tomorrow, is structured to mature serially from 2009 to 2028 with term maturities in 2033 and 2038. The bonds are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings and will be uninsured. About $160 million of the bonds will convert auction-rate debt to fixed rate.
Meanwhile, the New Jersey note sale - which is rated MIG-1 by Moody's - will take place in the competitive market today. It will significantly overshadow the estimated supply in the long-term competitive market, which is expected to be $271.9 million this week, compared with a revised $573.4 million last week.
Activity in the new-issue market was light yesterday.