Activity in the municipal market was light Monday as traders awaited guidance from new supply expected to be issued later in the week.
“It was quiet all day long,” said a trader in Los Angeles “Retail is doing OK in spots — anything that has a little bit of extra yield, but not general market names. They are looking at spreads and finding things of some value based upon that.”
A New York trader said retail demand as a whole has slowed down compared to last month.
Municipal market yields were unchanged from Friday, despite a show of broad strength in the Treasury market.
“Munis don’t follow Treasuries on a day-to-day or hourly basis,” the New York trader said. “We follow them in the broader term, but immediate reaction is rare.”
To start the week off, Jefferies & Co. priced for retail a $287.4 million deal for Nashville and Davidson counties in Tennessee.
The refunding bonds, rated Aa1 by Moody’s Investor Service and AA by Standard & Poor’s, offered maturities between 2011 and 2024. Yields ranged from 0.57% in 2012 to 3.03% in 2024.
Elsewhere, Citi and JPMorgan priced for retail $198 million of revenue bonds for the Dormitory Authority of the State of New York, borrowing on behalf of the City University of New York.
Fitch Ratings and Standard & Poor’s both give the CUNY bonds a AA-minus with a stable outlook. Moody’s rates the credit an equivalent Aa3.
Both offerings will be followed by institutional sales periods Tuesday.
New supply is expected to total more than $10 billion this week, according to Bloomberg LP.
“There’s some concern over the looming supply of issuance,” a trader in San Francisco said. “We’re waiting for new supply to give the market some direction.”
The largest deals this week include $1 billion general obligation offerings from Utah and the Texas Transportation Commission. Both deals are dominated by taxable Build America Bonds, which are widely expected to flood the market before the federal government’s 35% interest cost subsidy for BABs expires or is reduced at the end of the year.
The Municipal Market Data triple-A scale yielded 2.40% in 10 years and 3.34% in 20 years Monday, unchanged from Friday. The scale for 30 year debt also remained unchanged at 3.76%.
Munis have generally been weakening in the past three weeks after a series of record lows in late August.
Yields on the 10-year and 30-year triple-A scale bottomed out at 2.17% and 3.67%, respectively, on Aug. 25. The 20-year low of 3.28% was set Aug. 31.
Friday’s triple-A muni scale in 10 years was at 87.6% of comparable Treasuries and 30-year munis were at 96.4%, according to MMD. The scale for 30-year tax-exempt triple-A GO bonds was at 106.2% of the comparable London Interbank Offered Rate.
Demand for Treasuries was relatively flat Monday morning but appetite strengthened across the curve in the afternoon.
The benchmark 10-year note ended Monday at 2.71%, four basis points lower than Friday’s close at 2.75%. At the start of the month it yielded 2.47%, a 52-week low.
The 30-year bond closed Monday at 3.87%, or four basis points lower than Friday’s close at 3.91%. The two-year yield finished the day at 0.47%, one basis point lower than Friday’s closing yield.
Also in the new-issue market, Piper Jaffray priced $40.06 million of taxable tax allocation revenue bonds for the San Francisco Redevelopment Finance Authority.
The bonds, rated A by Standard & Poor’s and A1 by Moody’s, mature between 2012 and 2040, with yields ranging from 2.38% to 7.32%.
The two-year bonds offer a 190-basis point spread over comparable Treasuries and the 30-year bonds offer a 340 basis point spread.
Chris Holmes and Alex Roever, fixed-income strategists at JPMorgan, predicted in a note published Friday that with short-term rates anchored, the tax-exempt yield curve will remain at current levels or flatten in the remainder of the year.
They said long-term tax-exempt yields should remain low because although there should be plenty of municipal issuance in the next three months, much of the long-term component will be Build America Bonds.
New economic data was scarce Monday. The National Association of Home Builders reported that its housing market index, which gauges homebuilder sentiment, remained at a deeply pessimistic level of 13 in September.
Economists polled by Thomson Reuters had predicted a one-point increase to 14; any score below 50 indicates general pessimism.
“Consumer uncertainty has increased, and builders feel their hands are tied until potential home buyers feel more secure about the job market and economy,” said NAHB chairman Bob Jones.
Also, the Business Cycle Dating Committee of the National Bureau of Economic Research announced that the U.S. recession beginning in December 2007 ended in June 2009.
That makes the 18-month recession the longest since World War II, according to the NBER, which typically takes more than a year to issue its official judgment.
The committee’s determination does not mean the U.S. economy is back to normal, nor does it imply that a double-dip recession is not possible, noted Nigel Gault, chief U.S. economist at forecasting firm IHS Global Insight.
“It just means that a renewed downturn, should it occur, would be treated as a new recession,” Gault said. “The language that people use to describe the threat of a renewed downturn may perhaps evolve from 'double-dip recession’ to 'back-to-back recession.’ ”