Municipal Market Advisors - Research and Analytics

MMA Muni CDS (MCDX) NEW REPORT
CREDIT DEFAULT SWAPS. On May 6, Markit will launch MCDX, a new index of seven or more dealers’ daily evaluations of 50 uninsured, investment grade municipal credit default swaps (CDS). Accounts will be able to take long or short positions on the index, reasonably correlating to their respective views on generic muni credit and rates. In general, our initial opinion is favorable—CDS should lead to stronger demand for muni bonds and more consistent credit risk pricing. But there are notable risks as well, including amplified counterparty exposure and cash market pricing volatility.
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Special Coverage: Matt Fabian of MMA Speaks on the Transformed Investor Base; Dynamics of the MMA Consensus

Matt Fabian, Managing Director at Municipal Market Advisors describes the state of the municipal market, the transforming investor base, and the continued de-leveraging and its impact. Fabian also discusses high Muni to Treasury ratios carrying into 2009, and the MMA Consensus Scale and the recent difficulty in reaching a consensus. DerivActiv.com

Supreme Court Muni-Bond Delay Has Lawyers, Markets Puzzling
``The length of time to me means that there could be more subtlety to the decision, or that the decision itself might not be as cut-and-dried as we had expected,'' said Matt Fabian, managing director at Municipal Market Advisors, a Concord, Massachusetts-based research firm.... Bloomberg.com

MMA's: TOP STORIES

Munis Slightly Better While Market Waits For Clark County
(INSIGHT: pub. May 15, 2008; 10:30a EST)
Municipal bonds had a firm tone this morning with the Treasury market while secondary flow may be picking up but the real test comes later this morning:
”Cash has a bid side, while it is a little bit of a cat and mouse game out there, there still seems to be accounts putting money to work and we may be better by 1 or 2,” a trader said. “Guys are a bit cautious right now but the flow feels better. The real story will be how...” [ report w/no-risk trial sign up ]
Tax-Exempts Better Than Treasuries; Primary Goes Well
(INSIGHT: pub. May 14, 2008; 3:30p EST)
Municipal bonds finished the day with a firmer tone, outperforming Treasuries as the market digested several new offerings with ease:
”We ended up a little better on the day but the bid was definitely stronger earlier in the early afternoon,” a trader said. “The worst case we are unchanged but there are definitely spots where it is 1 or 2 better, especially for high grades.” [ report w/no-risk trial sign up ]

MUNICIPAL CONSENSUS 'Aaa' G.O.
(CONSENSUS: pub. 5/14/2008 3:00p EST)
The Consensus Yield Report is a pure 'Aaa' G.O. yield curve for the municipal bond market, formed from the daily input of over 80 fIrms. The data's median average is considered representative of a "mid market" level that identifies the Consensus measure of fair value. learn more about the Consensus

Maturity	Muni 'Aaa'	U.S. Trsy.	%
1yr:	2.29%	2.11%	109%
2yr:	2.52%	2.55%	99%
5yr:	3.03%	3.25%	93%
10yr:	3.80%	3.96%	96%
30yr:	4.86%	4.65%	105%

Munis Firm Despite Taxables As Primary In Spotlight
(INSIGHT: pub. May 14, 2008; 12:30p EST)
Municipal bonds were better on the day despite Treasury bonds trading at mixed levels while the primary market is the focus today led by the School Board of Miami-Dade Co. and Energy Northwest:
”The market is definitely better today,” a trader said. “There is a lot of inquiry from customers on all the happenings in the primary market. It is hard to stay ahead of them actually. This tone should carry us through the day despite taxables falling from their highs.” [ report w/no-risk trial sign up ]
Munis Up With Taxalbes; LOC Problems May Loom Ahead
(INSIGHT: pub. May 14, 2008; 10:30a EST)
Municipal bonds gained slightly in tune with Treasuries this morning as the height of new issuance for the week began:
”The market is a little firmer versus yesterday’s close,” a trader said. “Also there are some markets being made in the secondary so that is a good sign of what the day will bring. It is too soon to get a good read on new offerings but there is a good amount coming in from different issuers.” [ report w/no-risk trial sign up ]
Munis Fall With Taxables: Today's Primary Example Of Changed Marketplace
(INSIGHT: pub. May 13, 2008; 3:30p EST)
Municipal bonds fell today but outperformed the Treasury market as today’s new offerings were led by the Lower Colorado River Authority along with several smaller competitive deals:
”While Treasuries sold off the municipal market seems very controlled in comparison,” a trader said. “Items in the primary were well received and trading in the secondary was only 4 or 5 basis points cheaper by my account. That is meager when you look at the Treasury market today.” [ report w/no-risk trial sign up ]
Trader: "Welcome To the Post-Hedge Fund World"
(INSIGHT: pub. May 13, 2008; 12:30p EST)
Municipal bonds continued to trade weaker than yesterday in sympathy with the Treasury market while the primary market got rolling with the Lower Colorado River Authority sale:
”Municipals are very much the tail of the dog today,” a trader said. “We are caught between solid economic data and a shaky equity market. Municipals were off as much as 3 to 5 basis points in early trading but are now down 1 to 3 on light to moderate volume. New issues seem to be meeting with good interest, but the secondary is lackluster. Welcome to the post-hedge fund world.” [ report w/no-risk trial sign up ]
Munis Outperofrm Taxables But That May Not Last Into The Week
(INSIGHT: pub. May 12, 2008; 3:30p EST)
Municipal bonds were up today and the Treasury market was mixed while overall secondary activity for munis was tempered:
”In theory we were active in the market today, but really there is just not much going on,” a trader said. “While we had a typical Monday munis are still strong. We are following through on the strong bid...” [ report w/no-risk trial sign up ]
Municipals Quiet To Start; Traders Divided On Market
(INSIGHT: pub. May 12, 2008; 10:30a EST)
Municipal bonds were very quiet today but with a better tone in sympathy with Treasuries as this week’s supply continues a downward trend:
”It is very dead this morning,” a trader said. “We are up slightly, perhaps on the MBIA news. It is interesting because very early today there were some guys that looked like they wanted to do something and there were some markets being made, but then it just died and we are still there.” [ report w/no-risk trial sign up ]
New corporate losses last week tested recent market confidence that the credit cycle is easing.
(OUTLOOK: pub. May 12, 2008; 9:00a EST)
Municipals underperformed Treasuries’ rally; however, our sector’s correlation with the taxable market continues to improve—a positive sign for near-term institutional investors. Further, the bid from individual investors remains relatively strong; weekly reporting mutual funds have finally replaced all of the assets lost over the last year. Still, the announced sale or closure of UBS’s municipal department, sharp losses at AIG, and potential cost-cutting at Citigroup all imply a reduced bid-side and/or excess secondary supply over at least the next few quarters.
This week, corporate earnings releases could set off renewed flight to quality flows, in particular among shorter maturity taxable paper not as heavily burdened with $120 oil. The economic data calendar, which has begun to turn more favorable to bonds.
Please see the full report which includes the MARKET UPDATE, RECOMMENDATION AND CREDIT EVENTS sections. [ report w/no-risk trial sign up ]
The municipal market responded positively to the day’s perception...
(STRATEGIST: pub. May 8, 2008;)
The municipal market responded positively to the day’s perception that increased inflationary pressures would inhibit economic growth. As a result general interest rates rallied sharply and buoyed the tax-exempt sector. The primary market activity attracted interest as issues continued to reflect value on a spread basis. The secondary remained sluggish as offering levels and evaluations were more aggressively perceived.
Municipal bids-wanted par was again over $750M. The secondary market conditions are somewhat tentative as there is reason to be concerned that property & casualty (P&C) companies may increase their liquidations of municipal bonds. The era of prosperity of the P&C sector, in the wake of 9/11, may well have come to an end. Earlier in the week there was a significant bids-wanted list from a major insurer, while today’s announcement regarding AIG raises questions as to the need for tax-exempt income. [ report w/no-risk trial sign up ]
Munis End Little Changed; Traders: "Lack of Depth To Market"
(INSIGHT: pub. May 7, 2008; 4:30p EST)
Municipal bonds finished with a firm bias today as Treasuries pushed for gains in the afternoon while the muni market was inundated with new offerings from a smattering of issuers and wide variety of credits:
”People woke up a bit with those Treasury gains in the afternoon,” a trader said. “Offerings came from all over the place today, and while items got done, there were a lot that had difficulties.” [ report w/no-risk trial sign up ]
Munis Better As Big Primary For Day Gets Started
(INSIGHT: pub. May 6, 2008; 11:00a EST)
Municipal bonds gained slightly in sympathy with the Treasury market this morning while today’s new-issue calendar is robust:
”The focus is on the primary today,” a trader said. “There are other distractions today, that is obvious. But really, this morning we have one of the better new issue calendars that I’ve seen this year. With that much paper, people are waiting to see how things go with the orders and then make a decision on the market.” [ report w/no-risk trial sign up ]
Munis Slow To Start And Could Stay That Way
(INSIGHT: pub. May 5, 2008; 10:30a EST)
Municipal bonds were lightly traded this morning with no direction from the Treasury market as participants start a week that could be mostly range-bound:
”The market is just barely opening up and it is a typical start to a Monday with nothing to write home about,” a trader said. “Govies are flat or bouncing around a little bit but it is not anything that will get things going.” [ report w/no-risk trial sign up ]
Another week of bond-unfriendly data, yet the muni market continues to...
(OUTLOOK: pub. May 5, 2008; 9:30a EST)
Another week of bond-unfriendly data, yet the muni market continues to show reasonably balanced supply and demand at current levels. We are not as confident as the Street that the Fed is done cutting its target rate; however, bonds may begin to unwind former strength with shorter maturities underperforming.
Munis also contended with a record supply month in April, and value-priced new issue offerings have been unable to galvanize enough momentum to bring benchmark yields lower or improve secondary market liquidity. Recent inertia has also encouraged more buyers to position “riskier” bonds, like Ambac– and MBIA-insureds, lower-rated underlying credits, or longer terms to retail for slightly better yields. Thus, modest spread compression remains likely in the near term.
This week’s data includes a potential Davis decision today, another inflation reading, and likely lower liquidity.
Please see the full report which includes the MARKET UPDATE, RECOMMENDATION AND CREDIT EVENTS sections. [ report w/no-risk trial sign up ]
Monthly Municipal ADVISOR is available for subscribers
(ADVISOR: pub. May 2, 2008;)
The par amount of Auction Rate Securities (ARS) called since February 1 increased by 100% in April to nearly $56B. As a result, the restructuring efforts produced $43.8B in primary municipal issuance, a record for April. The large total pushed the 12-month sum back above $400B. Given the advantageous fixed-rate levels, steady retail demand and at least $100B ARS yet to be restructured, it is likely that the upcoming month’s issuance will remain robust. The greatest value in the yield curve coincided where most ARS deals had been restructured , 2 to 6-years.
Sectors of the tax-exempt market, such as health care, where ARS was used to produce financial savings experienced above average issuance generating value to investors. In addition, the extraordinary rally represented by offering benchmarks used for pricing resulted in the appearance of even greater value in the primary market. Simply issues sensitive to maintaining retail yields (4% in 10-years and 5% in 30-years) were priced at historically... [ report w/no-risk trial sign up ]
Munis Down And Participants Look at Ambac; Competitive Sales
(INSIGHT: pub. May 2, 2008; 4:00p EST)
Municipal bonds finished with a weak tone but still outperformed Treasuries today as traders said secondary activity remained light all day:
”There was definitely a softer bid side but it was not very significant,” a trader said. “There was just nothing going on today, no big issuances, not many bonds for the bid and just not very much trading. We had no response to the numbers this morning and that set the tone for a quiet day.” [ report w/no-risk trial sign up ]
Munis Mute To Data As Next Week Will Have Less Supply
(INSIGHT: pub. May 2, 2008; 10:15a EST)
Municipal bonds were lightly traded this morning despite large Treasury losses on payroll data as next week’s supply looks to be less than this week, a trend that has gone on for 4 consecutive weeks:
”I wish it weren’t true, but there just is not much trading this morning,” a trader said. “Munis did not move much at all from the data. Today it will be trade by appointment, it is just a real fade from activity earlier this week.”
This week’s (ending May 2) supply is estimated by The Bond Buyer to be $4.8 billion, down from $7.3 billion the week prior. A rough new-issue estimate for the week of May 5 is $4.5 billion, according to the newspaper.
”Next week we will again ramp down in the new-issue market,” a fund manager said. “This could pose some problems for participants because people seem to be active in the primary and then not as much in the secondary. What are they going to do with this diminished supply?” [ report w/no-risk trial sign up ]
Munis Better And Outperform Taxables As Primary Does Well
(INSIGHT: pub. May 1, 2008; 4:00p EST)
Municipal bonds gained on the day and outperformed a down Treasury market as a significant volume of new bonds were generally well-received:
”Today was busy with new issues and busy with the market up early, trading off a bit and then back again,” a trader said. “While we are nowhere near the highs of the day but we are substantially off the bottom and going firm into Friday’s payroll number.” [ report w/no-risk trial sign up ]
Munis Better With Large Primary Today
(INSIGHT: pub. May 1, 2008; 12:30p EST)
Municipal bonds gained today despite a mixed Treasury market and new issuances were the focal point, led by Catholic Healthcare West and San Diego Water Authority:
”Today is definitely a new issue day and the market is up,” a trader said. “We have seen reasonable, while not consistent, flow each day. It goes in spurts. The buy side has been waiting for bonds to open up in the secondary because it has been cheap. Feels like the trades we get done are...” [ report w/no-risk trial sign up ]
Munis Better With Taxables As Bids For High Grades Not Met
(INSIGHT: pub. May 1, 2008; 9:45a EST)
Municipal bonds gained this morning with the Treasury market as increased demand for munis is not met with supply in the secondary:
”We are better today, but bids are being made and there is just not a lot of offerings out there and that is what drives price action,” a trader said. “There is no two-way flow at all. You see a busy Treasury market this morning and the Libor spreads are moving so I have to believe the activity will...” [ report w/no-risk trial sign up ]
Munis Finish Flat To Firmer But Street Still Looking For Bonds
(INSIGHT: pub. April 30, 2008; 4:00p EST)
Municipal bonds ended the day with a firm tone while Treasuries gained more after the Federal Open Market Committee cut the federal funds rate an expected 25 basis points:
”The market was slightly better today and did not pay much attention to taxable gains after the Fed decision,” a trader said. “While a couple of deals were freed up today, things are still congested. We need more supply to get into the secondary and make some two-way flow in order to...” [ report w/no-risk trial sign up ]
Munis Ignore Data And Little Changed To Start
(INSIGHT: pub. April 30, 2008; 10:00a EST)
Municipal bonds were little changed this morning while Treasures posted minimal gains as the onslaught of new issues continues to permeate the market:
”I don’t see much of a change this morning before or after that morning data,” a fund manager said. “It has been a real busy new-issue market and that will continue today.” [ report w/no-risk trial sign up ]
Munis Gain On Day As Primary Bumped But For Different Reasons
(INSIGHT: pub. April 29, 2008; 4:00p EST)
Municipal bonds gained today along with Treasuries as the primary market was the focus as several deals were bumped today:
”We had had stuff going away the last two days and today it is firmer, but it is really dependent on the structure or a function of thin supply for certain items,” a trader said. “When you have so few things out for the bid it will drive prices up.”
One interesting note, a trader said that of the past 1,000 trading sessions, today was ... [ report w/no-risk trial sign up ]
Munis Better As Primary Gets Going
(INSIGHT: pub. April 29, 2008; 12:30p EST)
Municipal bonds gained through midday with Treasuries as new issues take center stage:
”The bid side is definitely stronger than it was yesterday and we are better by 2 or 3 basis points so far,” a trader said. “It was kind of a quiet start but now the new issues are coming out and things are getting busier. As far as I know most deals are not...” [ report w/no-risk trial sign up ]
Munis Start With Strong Tone As New Issues Key
(INSIGHT: pub. April 29, 2008; 10:00a EST)
Municipal bonds started with a firm tone today in line with Treasury gains as participants wait to digest a good amount of supply that is starting to come:
”Today we have a slightly better tone as munis are taking a cue from Treasuries,” a trader said. “So far we are better by one or so. The data today is not as important as what we will get tomorrow, so it feels as though the market is held in some sort of suspension until then. The only thing that will matter today is supply, of which we have a lot of the calendar coming.” [ report w/no-risk trial sign up ]
Munis Little Changed And Underperform A Better Treasury Market
(INSIGHT: pub. April 28, 2008; 4:00p EST)
Municipal bonds had no decisive price momentum today while participants appear to be waiting for better information on the economy as the Treasury market gained:
”In the morning some pricing ideas were getting circulated and people were looking at them to get a sense of where to do business, but other than that things are really quiet today,” a trader said. “With the Fed and jobless claims later in the week, the real market-moving stuff is well in front of us. Also, the calendar really is not big this week. With all this in mind, portfolio managers and traders are going to want to stick to...” [ report w/no-risk trial sign up ]
Munis Still Quiet And Waiting For Supply/Fed
(INSIGHT: pub. April 28, 2008; 12:30p EST)
Municipal bonds continued to crawl through the day while Treasuries gained slightly and muni traders wait for supply:
”We are pretty quiet today,” a trader said. “It is a big week for economic data but we don’t get that until later in the week so the next market moving event is really the FOMC meeting on Wednesday. For now, munis are just waiting for supply. It is a quiet start to what could be a hectic week.” [ report w/no-risk trial sign up ]
Munis Quiet To Start; Last Week ARS Calls Hit Record
(INSIGHT: pub. April 28, 2008; 10:00a EST)
Municipals were quiet to start the week and Treasuries were mixed as bond traders look ahead to a week chock-full of data and other market events:
”We are quiet and slow to open this morning,” a trader said. “Traders may be more risk averse this week because there are a ton of numbers and the Fed rate decision. That could keep a lot of players on the sidelines. There is a fairly decent retail bid in the street and ...” [ report w/no-risk trial sign up ]