Municipal bonds were weaker at mid-session, according to traders, with yields on some top-rated maturities stronger by as much as one basis point.
Municipal bond traders manned their desks on Wednesday for the last full trading day of 2015. Thursday's session will end at 2 p.m., New York time, and the market will be closed on Friday, Jan. 1, 2016, for the New Year's celebration. The market will reopen on Monday.
Secondary Market
The yield on the 10-year benchmark muni general obligation was as much as one basis point stronger from 1.93% on Tuesday, while the 30-year yield was as much as one basis point stronger from 2.82%, according to a read of Municipal Market Data's triple-A scale.
Treasury bonds were little changed on Wednesday. The yield on the two-year Treasury was flat from 1.09% on Tuesday, while the 10-year Treasury yield gained to 2.31% from 2.30% and the 30-year Treasury yield increased to 3.05% from 3.04%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 83.7% compared with 86.3% on Monday, while the 30-year muni to Treasury ratio stood at 92.7% versus 95.3%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 24,738 trades on Tuesday on volume of $3.09 billion.
Whither Puerto Rico?
Municipal market observers are looking ahead to the start of the new year – and wonder what's the story with Puerto Rico.
"Doubt continues over Monday's payment of nearly $1 billion in debt service on various Puerto Rico bonds," Janney Municipal Strategist Alan Schankel wrote in Wednesday's market comment. "With execution of a restructuring agreement in recent days, the Puerto Rico Electric Power Authority plans to make full payment on its $180 million interest obligation."
But concern remains about the island's other debt.
"More uncertain is status of about $370 million general obligation interest due on Monday, although we expect Puerto Rico's administration will pull out all stops to make the payment and postpone inevitable litigation which would be triggered by GO default," Schankel wrote. "Most likely to default are Puerto Rico Infrastructure Financing Authority bonds. Rum tax revenues which back the bonds are no longer available, as they are being 'clawed back' by the Commonwealth."
Primary Market
In was another quiet day in the primary as there are no bond or note deals on the calendar until next week.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $439.1 million to $5.53 billion on Wednesday. The total is comprised of $2.65 billion competitive sales and $2.88 billion of negotiated deals.
Muni Bond Issuance Slowed in Second Half
"We had record municipal bond issuance in the first half of 2015," according to John Mousseau, executive vice president at Cumberland Advisors. "With over $217 billion issued -- a 45% increase over last year -- 2015 would have been a record year for issuance -- had the second half of the year been as large as the first."
Mousseau said most of this issuance was to refinance older bonds with 2015 call dates.
"There was great pressure on issuers to refinance this debt, since this year's interest-rate levels would have saved issuers over 1% (100 basis points) on much of the 5%-plus yield debt issued in 2005," he wrote. "The bulk of 2005's issuance was front-loaded into the first part of that year; hence, the call dates on this debt became effective during the first half of the year."
