Municipal bonds fell significantly for certain maturities and only slightly for others in a day that saw increased trading activity as a result of increased selling pressure.
New issues were plentiful again but in many cases deals had to be cheapened in the 10-year range as this part of the yield curve continues to correct itself.
In terms of day-to-day total returns:
The high-grade, short-end of the curve showed a total return of negative 0.12% today, according to Municipal Market Advisors (MMA) data.
The high-grade, intermediate part of the curve showed a total return of negative 0.26% today.
The high-grade, long end of the curve showed a total return of negative 0.39% today.
The high-grade marketplace of bonds rated double-A or better was much better traded than it had been over the past few sessions, but sellers definitely outnumbered buyers. As a result, high-grades declined steadily throughout the day as at first sellers were hesitant to hit cheap bids but as the afternoon continued these market participants were more willing to do so.
Again the worst performing maturity range was in the 5- to 15-year range, but unlike the past few sessions, losses were noted in most maturities. Long bonds were weighed down with a few large sellers. Adding to this was new issues with long-dated bonds that forced many dealers to clear out existing long-bond inventory to make room for the new credits.
In the non-investment grade sector of non-rated bonds or triple-B and lower, trading was "all over the place" as one institutional trader put it. Another likened it to "playing darts with a blindfold on." While the past few days this area of the market had been locked up today it began to open as motivated sellers in this arena were able to find yield bargain hunters. Buyers are evaluating bonds in this space "credit by credit" and this makes wide sweeping statements about how prices fared unrealistic.
The new-issue calendar followed up a larger-than-average Monday state with an even bigger range of bonds today. Several retail order periods that began yesterday offered bonds again to individuals, most with yield increases in the 5- to 10-year range. The largely watched Maryland issuance was able to sell bonds of its bonds to retail Friday and Monday and has now transferred a few remaining bonds to a competitive deal set to have a silent auction tomorrow at 11:00 am EST.
Major new issues priced Tuesday:
$413 million state revolving fund bonds for the Massachusetts Water Pollution Abatement Trust; Aaa/AAA/AAA; for retail customers only.
$411 million tax-exempt general obligation bonds for New York; Aa3/AA/AA; retail only.
$400 million building aid revenue bonds for the New York City Transitional Finance Authority; A1/AA-/A+; retail only.
$397 million general obligation bonds for Utah; Aaa/AAA/AAA; retail only.
While last week this 5-day trailing chart showed principal losses in the 10-year sector, yield increases have now spread to most parts of the yield curve as the market has been burdened with primary and secondary selling pressure along with a pronounced correction from early February's impressive gains:
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.