Municipal bonds declined slightly Thursday, but a lack of trading volume on the Street likely inhibited any further losses as a negative sentiment dominated most participants.
The new-issue calendar has been steadily building, and the fear of what this supply will do to the market in the next few weeks may be starting to price in this week.
In terms of day-to-day total returns:
The high-grade, short end of the curve showed a total return of negative 0.02%, according to Municipal Market Advisors (MMA) data.
The high-grade, intermediate part of the curve showed a total return of negative 0.10%.
The high-grade, long end of the curve showed a total return of negative 0.13%.
The high-grade marketplace of bonds rated double-A or better lost a little ground today, but really the sentiment in the market is worse than how this sector traded.
Trading volume was less than average, and most participants said the only inquiry in this market came from high-net worth individuals looking for specific investment needs. The lack of broad-based support continues to be a problem.
Making matters worse, many participants report that the large institutional buyers of municipals have cash to spend but are reluctant to go long the market right now. A lack of liquidity should continue until institutions commit capital.
In the noninvestment grade sector of nonrated bonds or triple-B and lower, securities are showing some bad signs. After a few days of little trading but also little price changes, today there were some large trades of lower-rated tobacco and airport bonds that looked very cheap to many participants.
Credit spreads widened at the end of February and this process many continue as the high-grade sector looks to be suffering from a lack of demand and fear of what the near-future may bring.
The new-issue market was again large today with the University of California finishing its $800 million offering after selling to retail on Wednesday. The main problem is that after these deals are distributed, many brokers are finding it difficult to trade the bonds in the secondary market. When distribution becomes a problem, other issues such as price transparency follow.
Major deals priced today:
$798 million general revenue bonds for the Regents of the University of California in 2 series; Aa1; AA/NR; retail and institutions
$203 million general obligation bonds for Miami-Dade County, Fla.; Aa3/AA-/NR; retail and institutions.
$214 million general obligation bonds for Shelby County, Tenn.; Aa2/AA+/AA;
$110 million University Hospital Health System, Inc. revenue bonds for Ohio; A2/A/NR; institutions.
The market has been in a gradual slide for the better part of a month now.
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.