Municipal bonds were very lightly traded Thursday and moved only slightly as the backdrop of a rallying Treasury market and plunging stocks kept most large muni market-makers sidelined.
Thursday marked the last day of the week for any sizable new issues, and most of these bonds were distributed with relative ease.
In terms of day-to-day total returns:
- The high-grade, short end of the curve showed a total return of negative 0.01%, according to Municipal Market Advisors data.
The high-grade, intermediate part of the curve showed a total return of negative 0.02%.
The high-grade, long end of the curve showed a total return of positive 0.03%.
The high-grade marketplace of bonds rated double-A or better was dead. Bonds traded very infrequently as most traders were fixating on other market moves. There were slight declines for high-grades in the same maturity ranges we have noted all week, but these drops were nowhere near what we saw Wednesday.
A few big block trades took place at levels slightly richer than previous transactions on the very long end, say bonds maturing in 25 years or more. That was definitely cause for some hopes of a turnaround in the near future.
In the non-investment grade sector of non-rated bonds or triple-B and lower, bonds did not trade well. If there's trouble distributing bonds in the high-grade sector, usually the market for lower-rated bonds will have it even worse. This part of the market was further plagued by rumors of a few very large sellers of high-yield paper originating from bank liquidations.
The new-issue calendar was modest. Losses were still recorded in some short to intermediate maturities, though. A perfect example of how the new issue market was weak in the 5- to 10-year range was the $413 million deal from triple-A rated Massachusetts Water Pollution Abatement Trust. This morning, the underwriter said a balance of $30 million of bonds maturing between 2016 and 2019 remained. The bonds were again offered at lower prices, even though they have gotten cheaper every day this week.
Major new issues priced Thursday:
- $457 million system revenue bonds for the Trustees of the California State University; Aa3/A+/NR; institutional pricing.
$157 million health system revenue bonds for Catholic Health East; A1/A/A; retail and institutional combined pricing.
$136 million general obligation bonds for the Oregon University System; Aa2/AA/AA; institutional pricing.
The market may be ready to level off as the 30-year and 10-year benchmark yields have exceeded the high range that was reached last month.
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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.