Municipal buyers were out hunting for yield Thursday, but found little to bring home beyond some game in the intermediate range.
Overall flow in the secondary market was satisfactory, a California trader said.
Retail investors didn’t help much, though. There is little retail money left in the market, which is not surprising, he added, considering that October historically is not a redemption month. Many market participants instead are busy now cleaning up their books.
“We stabilized today,” he said. “The weaker underlying tone is gone; people are more constructive on the market. However, dealer inventories are very heavy.”
Many muni investors are also looking ahead toward this weekend’s critical Europe Union summit, if it takes place, concerning new developments on the bailout of Greece and the fate of the Euro. As such, those with squared positions are treating the meeting almost as an economic indicator, a trader in Florida said.
The results of the summit will likely affect how munis perform next week, he added.
“So, either we walk in on Monday and the Treasury market is running, because they’re disappointed, and so munis would probably follow, based on the interest [they’ve seen] this week,” the Florida trader said. “Or, it meets expectations and equities get a big pop, and munis may have a tough time here.”
Relative-value players, ahead of the curve, have already made their bets and put on their ratio trades, he said. They stand to benefit from good news out of Europe.
But mostly, he added, the next two days may be more about “housecleaning and squaring positions.”
Tax-exempt yields are unchanged at the edges and lower in the intermediate range. Yields are steady through four years and out beyond 17 years, according to the Municipal Market Data scale. Those between five and 17 years are one or two basis points lower.
The benchmark 10-year muni yield Thursday slipped two basis points to 2.43%. It sits 46 basis points above the record low it held on Sept. 23.
The 30-year yield remained at 3.69% for a third straight session. The two-year yield hovered at 0.45% for a seventh consecutive session.
Treasury yields, as they did Wednesday, started the morning slightly weaker, fell around noon, only to finish Thursday’s session mostly higher. The benchmark 10-year Treasury yield rose two basis points to 2.19%.
The 30-year increased three basis points to 3.21%. The two-year yield held steady at 0.28%.
“We migrate in the direction of wherever Treasuries go,” another California trader said.
The industry predicts this week’s new issuance will total $6.7 billion. Last week, the municipal bond market saw $4.5 billion.
Three deals — two negotiated and one competitive — were expected to provide both a disproportionate share of the volume as well as direction for the market.
One deal, for $1.8 billion of California general obligation bonds, arrived with concessions.
Another, $1 billion of New York City’s Hudson Yards Infrastructure Corp. senior revenue bonds, rolled in with tight pricing. In all, the market reacted with yields mostly holding their ground.
In one sign of the market’s current strength, Barclays Capital and Goldman, Sachs & Co. teamed up to price Ohio State University general receipts taxable bonds with 100-year maturities. The deal was upsized from $300 to $500 million Wednesday based on robust investor demand, a source close to the deal told The Bond Buyer.
On the competitive side of the market, JPMorgan won $100 million of New Hampshire capital improvement GOs.
The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s and AA-plus by Fitch Ratings.
Yields ranged from 0.38% with a 3.00% coupon in 2013 to 3.80% with a 4.00% coupon in 2031.
Muni-Treasury ratios, which have been rising of late, now stand at their highest levels since January 2009, according to Janney Capital Markets municipal credit analyst Tom Kozlik. He cited a couple of reasons for the rise in a recent research report.
To begin with, the pace of new issuance is accelerating, following a sluggish start to 2011. Also, Kozlik added, possible risks to municipal bonds’ tax exemption could generate uncertainty and hesitation among investors.
In economic news, the National Association of Realtors reported Thursday that existing home sales fell 3.0% in September to a seasonally-adjusted 4.91 million. August sales were revised upward to 5.06 million, from the 5.03 million figure reported last month.
The median sales price fell to $165,400 from $171,200 in September. The number has fallen 3.4% from a year ago.
Also, the Labor Department reported Thursday that initial claims for U.S. state unemployment benefits decreased 6,000 to 403,000 in the week of Oct. 15.
The numbers fell just shy of expectations.
Initial claims for the most recent week decreased 25,000 from the 428,000 level for the week of September 17.
Economists whom Market News International surveyed had anticipated initial claims to register 405,000. That is 1,000 more than the previously reported 404,000 for the week of October 8.
The previous week’s claims were revised higher to 409,000.