Cash abounds in the municipal marketplace, traders said; there's just nowhere to put it.
With the month of January boosting investor liquidity with coupons, maturing bonds and closed-book profits from the end of 2013, muni participants are eagerly awaiting new deals as a place to invest their money.
"January is one of the biggest months for coupon payments and maturities so you've got a lot of new roll-off money but very little opportunity," a Texas-based trader said in an interview. "My plate has been pretty bare so I'm excited for next week to get some activity in the primary market."
Most trading activity in munis Thursday was in the secondary market, the trader said, even as some of the biggest deals of the week came to the market.
"I look at supply, which is going to affect me a lot," one New York-based trader said in an interview. "There's plenty of cash and money out there but there's just not much volume to apply pressure."
Four medium-sized deals were slated for Thursday, including $205 million of San Francisco general obligations and $150 million of Massachusetts revenue bonds.
"Buyers have money, even the larger funds that have been seeing lots of outflows," a Chicago-based trader said in an interview. "Some of those that have done a ton of selling still have some cash on hand."
Market participants were unanimous in their concern over unemployment data due Friday.
"I'll wait to see what the payroll brings, and then kind of formulate a strategy," the Chicago trader said.The U.S. government is set to release its monthly employment situation report, which has showed a declining rate of unemployment. The data is considered a gauge of economic health that the Federal Reserve will use to determine how to advance tapering of its quantitative easing policy.
"It's quiet so far with Treasuries feeling steady and munis firm," the New York trader said. "There's not a lot of supply and I think with the payroll number coming out tomorrow, some people are waiting to see what's going on."
The new issue calendar is light this week, with potential long-term volume expected to increase to $1.79 billion, from a negligible $10.8 million last week.
JPMorgan Securities LLC won the bid for $205 million of San Francisco Unified School District general obligation bonds Thursday, the second-largest deal of the week. The bonds are rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's Ratings Services.
Yields ranged from 0.33% on 5%-coupon bonds maturing in 2016 to 4.326% on bonds maturing in 2033 with a 4.25% coupon. The bonds are callable at par in 2022.
In the negotiated market, Barclays priced $150 million of Massachusetts Development Finance Agency revenue bonds for Northeastern University. They are rated A2 by Moody's.
Yields on the bonds ranged from 4.40% for 5%-coupon bonds maturing in 2032 to 4.87% on 5%-coupon bonds maturing in 2044. The bonds are callable at par in 2024.
"It's pretty thin but after a few new issues it's looking firm," the Chicago-based trader said. "Credit spreads aren't really encouraging anyone to buy right now, it's very selective and spotty. I think there's a ton of inquiry right now for 11-to-17 year bonds if you can find the paper."
The Texas-based trader also pointed out that strength along the yield curve was in the 11 to 12-year range of maturities.
"Munis have some wind in their sails," he said. "It's going to pick up next week."
Ratios of muni-to-treasury prices are "terrible" in the two- to five-year range, one trader said, with the most appealing figures in the 12-15 year range.
Yields on the Municipal Market Data triple-A scale Thursday firmed across the board, with bonds maturing in 2019 seeing the biggest drop in yield. Those bonds firmed by as much as four basis points, while yields on maturities beyond 2019 fell as much as three basis points.
According to MMD, bonds with maturities within the next three years were steady, while those maturing from 2018 fell as much as one basis point.
The 10-year and 30-year triple-A tax-exempt yields on the MMD scale slid three basis points Thursday to 2.71% and 4.10%, respectively. The two-year yield held at 0.34% for a fourth straight session.
The Municipal Market Advisors benchmark triple-A scale showed yields as much as three basis points lower across the curve Thursday. The 10-year triple-A and 30-year yields each slid three basis points to 2.71% and 4.30%, respectively. The two-year held at 0.35%.
Treasuries were firmer Thursday. The 10-year and 30-year yields each slid three basis points to 2.97% and 3.87%, respectively. The two-year yield fell one basis point to 0.43%.
The secondary market showed overwhelming strengthening, according to data provider Markit.
Ohio Tobacco Settlement Financing Authority bonds with a 5.875% coupon maturing in 2047 fell three basis points to 7.95%, while Massachusetts State School Building Authority sales tax revenue bonds with a 5% coupon in 2030 also slid three basis points to 3.74%.
Michigan Hospital Financing Authority revenue bonds with a 5.25% coupon maturing in 2046 slid three basis points 5.58%.
In other economic news, the Labor Department said Thursday initial jobless claims dropped 15,000 to 330,000 in the week ended Jan. 4. The four-week average of initial jobless claims fell 9,750 to 349,000.
