The municipal market was unchanged to slightly firmer yesterday amid fairly light secondary trading activity.
“There is a bit of a firmer tone,” a veteran trader in New York said. “I’d say we’re maybe up a basis point or two inside of five years, but flat longer than that.”
A veteran trader in Los Angeles echoed that sentiment.
“Not a lot of activity, but seems to be getting a little bit better,” the trader said. “There is a sense that we are going to be up a basis point or two.”
The Treasury market showed some gains yesterday. The benchmark 10-year note was quoted near the end of the session at 3.03% after opening at 3.11%.
The 30-year bond was quoted near the end of the session at 4.01% after opening at 4.07%.
The two-year note was quoted near the end of the session at 0.63% after opening at 0.65%.
The Municipal Market Data triple-A scale yielded 2.85% in 10 years and 3.76% in 20 years yesterday, following levels of 2.90% and 3.76% Friday. The scale yielded 4.05% in 30 years yesterday, matching Friday’s level.
Friday’s triple-A muni scale in 10 years was at 93.2% of comparable Treasuries and 30-year munis were at 99.5%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 104.4% of the comparable London Interbank Offered Rate.
Los Angeles serves up a $1.2 billion tax and revenue anticipation note sale in the short-term market this week while issuers in New York deliver a pair of substantial deals in the long-term market.
The new activity comes just as investors bid adieu to the first half of 2010 and gear up for an estimated $4.07 billion in new, long-term volume, according to Ipreo LLC and The Bond Buyer.
The volume is noticeably lighter than last week’s revised $6.48 billion, a tally that was down from the $8.21 billion originally expected, according to Thomson Reuters.
The Los Angeles note deal will kick off this week’s public finance activity when JPMorgan prices the deal today. The one-year notes are rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch Ratings.
In New York, issuers are readying a pair of deals totaling over $1 billion, one of which will boost the availability of Build America Bonds at a time when investors continue to search for relatively attractive bonds to replace upcoming July 1 coupon payments and redemption proceeds.
The deals include an uncommon $1.3 billion refinancing of the One Bryant Park office tower near Times Square in Manhattan.
The simultaneous issuance of $650 million of refunding Liberty bonds and marketing of $650 million of commercial mortgage-backed securities is what makes the transaction so unusual.
The New York Liberty Development Corp. plans to issue the Liberty bonds on behalf of the building’s owners, Bank of America Merrill Lynch and the Durst Organization. The LDC is an affiliate of the Empire State Development Corp.
The Liberty bonds are planned for pricing tomorrow by Bank of America Merrill. Fitch preliminarily rates the three tranches of Liberty bonds AA, A, and BBB-minus.
The state’s Metropolitan Transportation Authority is also planning an appearance with approximately $600 million of revenue bonds — $555 million of Series 2010C-1 taxable BABs and $45 million of Series 2010C-2 tax-exempt bonds.
Rated A2 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch, the MTA offering will be priced by Barclays Capital.
A $900 million sale of Illinois GO taxable BABs was delayed until after the state’s fiscal 2011 budget is in place.
The deal, which will be priced by Citi, is now expected to sell July 12.
“Credit concerns continue to overshadow municipal markets,” wrote Alan Schankel, managing director at Janney Capital Markets. “Although yields are plumbing record-low territory and fund flows remain positive, several indicators continue to reflect these credit concerns, including muni-to-Treasury ratios and credit default swap levels.”
Schankel said that today’s environment is sharply different from earlier circumstances.
“Liquidity is much improved, although it’s fair to say that it has not returned to pre-crisis levels,” he wrote. “The primary focus, however, is on credit quality.”
In economic data released yesterday, personal consumption increased 0.2% in May and income rose 0.4% as core consumption increased by the largest amount in seven months.
Core personal consumption expenditures, which excludes food and energy costs, increased 0.2% for the month, the largest core increase since October.
Core expenditures for the year ending in May increased 1.3%.
The personal savings rate, which is disposable personal income minus consumption, was $454.3 billion in May, the highest level since September.
April’s personal savings rate was $427.2 billion.
Economists expected personal and core PCE to each rise 0.1%, according to the median estimate from Thomson Reuters.
Economists estimated incomes would rise 0.5%.
Priti Patnaik contributed to this column.