THE SKY STOPS FALLING......FOR 1 DAY AT LEAST

The muni market finally got the reprieve it needed after a month of movement to dramatically higher rates on the long end. Not since 12/21/10 has the MMD scale had a move to lower rates until today. All this with the government market moving to higher yields throughout the maturity spectrum! Buyers on the long end took advantage of yields not seen on long munis since the inception of BABs in April of 2009. Cal G.O. 6% coupons in 30 years were offered at a 6.10 yield and quality NYC names such as TFA (Aa1/AAA/AAA)  being offered in 5.35% range (last week's deal) and NYC Water in a retail order period with a 5.5% yield in 30 years. Needless to say retail was hungry for both deals.

An interesting twist of fate due to the end of the BAB issuance : as rates on tax exempts have risen due to more supply without BABs, BABs themselves have rallied by tightening spreads to treasuries. This phenomenon has some buyers looking to sell the BAB credit and buy the tax exempt bonds of the same credit. Last Friday we saw some sales of NYC Water BABs at a 5.75-5.85 yield with the expectation that the new tax exempt deal this week to come somewhere in the 5.5% range. The sellers are looking to buy the tax exempt credit while selling the taxable BAB credit of the same issuer and only give up 25-35 bps on the trade. If this relationship between the tax exempt and taxable bond of approximately a 35 bp spread holds, then this would have the buyer purchasing the new tax exempt deal at around a 94% ratio of it's taxable twin!! This most likely will be only for the higher rated credits in the BABs and tax exempt markets and given the ethereal nature of liquidity it could be short lived. It might be the only bright light  to come out of the end of BAB issuance.

Alas tomorrow is another day and hope springs eternal that the muni market can have another day in the sun like today...even though it rained and snowed in the northeast! The market set up certainly looks better than last week's with another small calendar due to early January and the holiday week.

One more thing....I hope The Donald has a good night's sleep!!