The municipal market was quiet and unchanged yesterday as market participants returned from the long holiday weekend.
"Nothing is really trading. We've gotten a few down bids here and there, but it's very quiet," a trader in New York said. "We're seeing things trading about two to four basis points cheaper, but only to get something done. It's not because the market is dictating it."
Trades reported by the Municipal Securities Rulemaking Board yesterday showed little movement. A dealer sold to a customer Port Authority of New York and New Jersey 4.75s of 2033 at 5.02%, even with where they were sold Thursday. A dealer sold to a customer Golden State Tobacco Securitization Corp. 4.5s of 2027 at 7.18%, even with where they traded Thursday. A dealer bought from a customer insured New Jersey Economic Development Authority 5.5s of 2031 at 5.75%, even with where they traded Thursday.
Bonds from an interdealer trade of New York's Metropolitan Transportation Authority 5.125s of 2029 yielded 5.67%, two basis points higher than where they traded Thursday. A dealer bought from a customer Puerto Rico 5.25s of 2024 at 6.76%, even with where they were sold Thursday. A dealer sold to a customer California 6s of 2038 at 6.00%, down one basis point from where they traded Thursday.
"I'm really not seeing much going on at all," a trader in Los Angeles said. "It's a pretty quiet start to the week, after the holiday. I'd call it totally flat."
The Treasury market showed gains yesterday. The yield on the benchmark 10-year note, which opened at 2.92%, was quoted near the end of the session at 2.84%. The yield on the two-year note was quoted near the end of the session at 0.87% after opening at 0.95%. The yield on the 30-year bond, which opened at 3.75%, was quoted near the end of the session at 3.69%.
As of Thursday's close, the triple-A muni scale in 10 years was at 107.9% of comparable Treasuries, according to Municipal Market Data. Additionally, 30-year munis were 126.6% of comparable Treasuries. Also, as of the close Thursday, 30-year tax-exempt triple-A rated general obligation bonds were at 136.4% of the comparable London Interbank Offered Rate.
The new-issue calendar this week will be an estimated $3.75 billion of competitive and negotiated volume, compared with last week when issuers priced a revised $2.79 billion ahead of the Passover and Easter holidays, according to Thomson Reuters.
The new-issue calendar has been somewhat light the past two weeks - aside from last week's twice-upsized $883 million New York City general obligation offering - following market participants devouring the $6.5 billion California GO sale late last month with only a slight uptick in yields, according to Thomson Reuters.
A $400 million sale of capital improvement limited obligation bonds from North Carolina is the largest deal expected in the negotiated market this week amid a handful of offerings from the Southeast. The deal, which is being priced on Thursday after a retail order period tomorrow by lead manager Banc of America Securities LLC, is expected to be structured with serial bonds maturing from 2010 to 2029. The bonds are rated Aa1 by Moody's Investors Service, and AA-plus by Standard & Poor's and Fitch Ratings.
New Jersey will enter the market with $398 million of certificates of participation in a Citi-led deal that is structured to mature from 2010 to 2030 and is rated A1 by Moody's and AA-minus by Standard & Poor's. The deal will be priced on Thursday following a retail order period slated for tomorrow.
In a weekly report, George Friedlander, managing director and fixed-income strategist at Citi, wrote that "even before the Treasury market rally on Wednesday, April 8, the muni market had held in quite well in the aftermath of the massive California deal."
"Given strong demand for munis and the strong Treasury rally on Wednesday, by Thursday morning muni yields were modestly lower than they were at the end of March in most maturities," he wrote. "New-issue volume has subsided, at least temporarily, and we have noted increased willingness by many individual investors to move out along the yield curve."
"We continue to believe that this is an appropriate strategy," he said, "for reasons that we have outlined in previous pieces: the likelihood that inflation will remain quite modest for a number of years, the possibility that for now deflation is a greater risk than inflation, the steep slope of the muni yield curve, and the likely capacity of the muni market to withstand higher Treasury yields that result from factors other than inflation. Indeed, the push by many investors to lengthen maturity has been reaccelerated recently as a result of a renewed drop in yields on shorter intermediate maturities."
Matt Fabian, managing director at Municipal Market Advisors, wrote in a weekly report that, "once again, the muni market held fairly steady last week despite a large slate of new issues priced with highly attractive yields."
"Indeed, New York City was able to nearly double its offering size in response to investor demand for nearly 10% taxable equivalent yields," he wrote. "Trading elsewhere in municipals was sparse, in part because of the holiday-shortened schedule but also noting a limited bid for outstanding bonds because of their relative cost versus new loans. The conclusion of tax season has historically been constructive for municipal performance, and this year may see the same."
"However, an improving stock market and Moody's generic warning about state and local credit quality may begin to dissuade individual investor purchases" he said. "Still, mutual fund inflows have been strong and persistent, and initial bank earnings releases encouraging. Prospects for much higher income tax rates are also a positive for muni prices. This week, supply is more modest but the economic calendar features releases that caused problems for munis and Treasuries last time around."
The economic calendar was light yesterday.