Municipal bonds were hampered by severe illiquidity in the secondary markets Monday and saw slight declines in the short- to mid-range maturities. At the same time, a large selection of triple-A credits in the new issue market kept many high-net worth individuals and bond funds busy. In terms of day-to-day total returns: The high-grade, short end of the curve showed a total return of negative 0.11%, 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 extremely limited trading today. As of 3 p.m. EST a mere 350 trades of $1 million or more had occurred. By comparison, last Wednesday by that time there were more than 1,000 large trades. The day began with rumors of a few large sellers, who never quite materialized, but nonetheless the chatter easily scared any market makers out of municipals. Bonds maturing between five and 10 years were again the worst performing range. New issues were priced with concessions in this range, and any secondary trades that occurred here were also noticeably cheaper than where they had traded previously. On the other hand, long bonds maturing in 20 years or more continued to maintain balance and were little changed. In the non-investment grade sector of non-rated bonds or triple-B and lower, the liquidity situation was even worse. These bonds were offered in large amounts, but had very few takers. March tends to be a bad month for munis, and the expectation by many in the market is that lower-rated credits will get hit the hardest.
The new-issue calendar was large for a Monday. As the municipal market has become less reliant on large banks as buyers and instead focusing on retail customers and bond funds, more and more new issues are coming with two-day or even three-day retail order periods. These periods are designed to gauge the interest of smaller buyers, and underwriters have found this to be a more efficient way to sell bonds in many cases. Major new issues priced Monday: $413 million state revolving fund bonds for the Massachusetts Water Pollution Abatement Trust; Aaa/AAA/AAA; for retail customers only. $410 million general obligation bonds for Maryland in 2 series; Aaa/AAA/AAA; 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. The chart below tracks the benchmark triple-A yield levels over the past month. Since Feb. 15, yields have inched higher every day, taking back almost all of the gains from the start of the month, but the graph also shows that municipals thus far have not experienced the volatility of 2008.