Municipal bond yields continued their downward push Tuesday thanks to a paucity of issuance.
“The market moved up nicely and solidly,” a trader in New York said.
Short-term tax-exempt yields were flat to four basis points lower by the day’s end, according to the Municipal Market Data triple-A scale. Intermediate yields declined three to five basis points, while yields maturing beyond 2023 fell one to three basis points.
The latest rally notched a sixth straight day of lower yields. The benchmark 10-year muni finished at 3.07%, falling four basis points from Monday and marking a 20-point drop in the past six sessions.
The two-year yield offered 0.60% and the 30-year yield offered 4.74%. They fell three and two basis points, respectively.
“Any day the market moves up one to three basis points, as we’ve seen, that’s a good market,” the New York trader said. “That augurs well.”
Crossover buyers are helping the rally as relative-value investors find value among tax-exempts.
The triple-A-rated, 30-year muni offered nearly 107% of comparable Treasuries Tuesday, versus as little as 101.3% two months ago.
“Muni intermediates were still the best game in town,” Thomson Reuters’ Randy Smolik wrote in his MMD daily closing comment. The 2018 to 2020 range, in particular, saw “some of the strongest reaching today. No calendar kept sellers away.”
As long as the taxable market was not trending higher in yield, Smolik added, muni traders felt emboldened to hold positions for greater gains.
Munis didn’t taking their lead from Treasuries, which were mixed on the day. The 10-year Treasury finished one basis point firmer from Monday’s close at 3.36%. The two-year yield rose a single point to 0.66% and the 30-year yield declined three basis points to 4.43%.
A lack of issuance was the biggest reason behind the firming, traders said. The Bond Buyer calculated that just $1.43 billion of volume would hit the market this week, versus $2.48 billion last week.
Volume has been down significantly in 2011. Issuance in the first quarter averaged $3 billion per week, against an average of $8 billion in 2010.
Tuesday, part of a week shortened by two holidays, had little to offer.
Citi priced the largest negotiated sale of the day: $40 million of certificates of participation for the Manatee County, Fla., School Board master lease program.
The deal was rated Aa3 by Moody’s Investors Service, A-minus by Standard & Poor’s, and A-plus by Fitch Ratings.
Assured Guaranty Municipal Corp. wrapped certain spots of the transaction. Those yields ranged from 4.54% in 2020 to 5.7% in 2031.
Elsewhere, Piper Jaffray & Co. priced $25.5 million of tax-exempt and taxable tax allocation revenue bonds for the San Francisco Redevelopment Financing Authority. Both portions of the sale are rated A by Standard & Poor’s and A1 by Moody’s.
Yields for the tax-exempt portion range from 6.18% in 2026 to 6.63% in 2041.
Yields for the taxable portion range from 2.71% in 2012 to 8.65% in 2031. The spread against Treasuries stood at 250 basis points in 2012, 485 in 2026 and 420 in 2031.
In the competitive market, Wells Fargo Securities priced $98.8 million of combination tax and revenue certificates of obligation for Sugar Land, Texas.
The city’s certificates, boasting gilt-edged ratings from Standard & Poor’s and Fitch, have yields from 0.40% in 2012 through 4.92% in 2041.
The largest deal on the long-term negotiated calendar this week is a $290 million Rochester, Minn., hospital revenue deal on behalf of the Mayo Clinic.
On the competitive side, a $120 million Florida Department of Transportation offering is expected to be priced Wednesday by Bank of America Merrill Lynch. The deal is rated Aa2 by Moody’s and AA by Standard & Poor’s.
The industry expects issuance to rebound this year, but it will happen in a “slower and more muted” fashion, according to Citi analyst George Friedlander’s latest research report.
“From our perch in early April, we still aren’t seeing long-term volume poised to take off,” he wrote. “Rather, we expect the rebound in volume to be quite gradual, giving the market time to develop a firmer footing.”
Citi’s municipal analyst group on April 1 estimated volume for 2011 at $275 billion. This second revision marks a decrease from the $350 billion forecast at the end of 2010, and the $300 billion estimate from the first-quarter.
The new estimate represents a 37% decline from 2010 levels. And, Friedlander wrote, it “should even lead to a modest drop in tax-exempt issuance, despite the loss of state and local government access to Build America Bonds.”
In economic news, housing starts showed a mixed picture for the month of March. Starts were up 7.2% — or 549,000 houses on an annually adjusted pace — in March from the previous month, according to numbers the Commerce Department announced Tuesday.
The figure did little to make up for a particularly weak February. Starts that month fell 19% to the lowest level in almost two years.
“The economy has created nearly 1.5 million payroll jobs since February 2010, yet housing starts remain stuck near the bottom nationally and in nearly every state,” Patrick Newport, economist at IHS Global Insight, wrote in a research report.
“Housing starts improved in March partly because of special factors,” he added. “Melting snow held back construction in the Northeast and Midwest in February, while building code changes in California, New York and Pennsylvania that went into effect Dec. 31, 2010, probably contributed to a small surge in starts during December and January — which resulted in negative payback in February.”
