Municipal securities stayed true to their traditionally sleepy nature Friday as trading was limited in the secondary markets.
However, yield levels increased (and prices declined) for short-maturity bonds once again. Meantime, the State of Maryland offered triple-A bonds specifically to retail investors in the new-issue market.
In terms of day-to-day total returns:
The high-grade, short-end of the curve showed a total return of negative 0.11% Friday, according to Municipal Market Advisors (MMA) data.
The high-grade, intermediate part of the curve showed a total return of negative 0.24%.
The high-grade, long end of the curve showed a total return of negative 0.17%.
The high-grade marketplace of bonds rated double-A or better saw limited trading again, which was the case all this week. Many institutional participants, looking at what could have been a potentially large cheapening process for municipals, chose not to actively make markets ahead of month-end evaluations in fear of further capitulating municipals. The end of February and the beginning of March have historically been difficult times for the market, and some are voicing pessimism toward next week.
Bonds maturing between five and 12 years performed poorly again as this sector continues to correct itself. New deals are priced cheaper in this range when compared with where these securities have traded in the secondary markets of late, an indication that underwriters are fully aware of what is happening in these maturities.
In the non-investment grade sector of non-rated bonds or triple-B and lower, illiquidity ruled. Price discovery here was very difficult as a result. End-of-day evaluations of many of these credits will be very difficult to ascertain, likely leading to high volatility in terms of net asset valuations for holders of municipal high-yield mutual funds this week.
New issues are usually absent on Fridays, but this week was different. Maryland general obligations (GOs)are the benchmark for any triple-A yield scales and the entire market watched how these bonds priced Friday in an order period designated for retail customers only.
Retail interest in Maryland GOs will dictate retail interest for other credits in the coming week, and after the issuer sold over half the bonds to retail in a single day, it is a good sign for high-grades going into next week.
Major new issues priced Friday:
A $410 million general obligation bonds for Maryland in 2 series; Aaa/AAA/AAA; Merrill Lynch & Co. is the underwriter. This is day one of two retail order periods.
Once again, losses (yield increases) 15 years and in on a five-day trailing basis remain the highest as the market corrects itself.
Matthew Posner is a director with Municipal Market Advisors. Posner writes intraday research, data and commentary on the municipal market and heads up the firm's efforts in Washington, D.C., as an educator of policy markers on the tax-exempt securities market. Founded in 1995, MMA is the leading independent strategy, research and advisory firm in municipal bond industry.