The municipal market was weaker in fairly light activity yesterday ahead of a large slate of new issues set to hit the primary market this week.Traders said tax-exempt yields were higher by two or three basis points.
"We're off to a bit of a weaker start," a trader in New York said. "It's a bit slow today, coming back from the weekend, but there's definitely some cheapness out there. It's not too much at this point, probably about two basis points, maybe three in spots, but it's weaker."
Activity in the new-issue market is slated to pick up this week, as an estimated $11.4 billion in total new-issue volume is expected, according to The Bond Buyer and Ipreo LLC.
The week's largest slated transactions are a $3.5 billion Puerto Rico Sales Tax Financing Corp. sales tax revenue offering to be priced by Citi tomorrow, and $900 million of Los Angeles County one-year tax and revenue anticipation notes that were postponed last week in order for officials to assess how California's $24 billion budget gap would affect the county's finances. Merrill Lynch & Co., which will price the deal, was still uncertain of the firm pricing date as of yesterday.
In the new-issue market yesterday, the Puerto Rico financing agency began retail pricing on its massive deal. The multi-faceted structure consists of current interest serial bonds maturing from 2014 to 2020, term bonds in 2024, 2039, 2042 and 2044, capital appreciation bonds from 2021 to 2036, and conversion bonds due from 2017 to 2022 and in 2040, though retail pricing information was unavailable by press time. The bonds are rated A2 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings.
Meanwhile, JPMorgan priced for retail investors $330.9 million of general obligation bonds for Texas in three series. Bonds from the $223.9 million Series C-1 mature from 2010 through 2029, with term bonds in 2034 and 2039. Yields range from 1.20% with a 3% coupon in 2011 to 5.03% with a 5% coupon in 2039. Bonds maturing in 2010 will be decided via sealed bid. Bonds maturing from 2020 through 2029 were not offered during the retail order period. Bonds from the $57.1 million Series C-2 mature from 2010 through 2023, with yields ranging from 1.20% with a 4% coupon in 2011 to 4.02% with a 4% coupon in 2023.
Bonds maturing in 2010 will be decided via sealed bid. Bonds from the $50 million Series D mature from 2020 through 2029, with a term bond in 2035. Yields range from 3.56% with a 5% coupon in 2020 to 4.59% with a 5% coupon in 2029. Bonds maturing in 2035 were not offered during the retail order period. All the bonds are callable at par in 2019. The credit is rated Aa1 by Moody's, AA by Standard & Poor's and AA-plus by Fitch.
The Treasury market showed losses yesterday. The yield on the benchmark 10-year note, which opened at 3.83%, was quoted near the end of the session at 3.93%. The yield on the two-year note was quoted near the end of the session at 1.45% after opening at 1.29%. The yield on the 30-year bond, which opened at 4.63%, was quoted near the end of the session at 4.67%.
As of Friday's close, the triple-A muni scale in 10 years was at 79.0% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 100.2% of comparable Treasuries. Also, as of the close Friday, 30-year tax-exempt triple-A general obligation bonds were at 104.0% of the comparable London Interbank Offered Rate.
In a weekly report, Matt Fabian, managing director at Municipal Market Advisors, wrote that "municipal bond prices have generally withstood the extreme volatility in the Treasury and mortgage markets in the last two weeks, although participants have grown notably more anxious and liquidity is more difficult to find."
"In part, the latter reflects how dealers continue to focus on the distribution side of underwriting: keeping coupons and yields high to attract buyers and close a quick sale while keeping the calendar manageable," he continued. "Yet while this puts near-term pressure on the value of outstanding bonds, which are less prepared for a world of higher yields, our market's longer-term prospects continue to improve. Build America Bonds provide aggressive pricing guidance, and tax-exempt institutional demand is rebounding via mutual fund inflows, stimulus-fueled bank buying, and even a nascent return of tender-option bond programs."
"Thus, muni strength, with a few hiccups, may reasonably continue through year end and beyond," Fabian wrote. "However, keep in mind that 'strength' doesn't necessarily mean lower yields, and outperformance of Treasuries largely depends on Treasuries. And economic trends, while better, remain grim."
The economic calendar was light yesterday.