The municipal market was unchanged to slightly weaker yesterday amid somewhat light secondary trading, as some of the week’s largest deals were priced in the primary.
A Los Angeles trader said that market participants “were a little confused by feeling that there is going to be plenty of money around for the June reinvestments, and when that didn’t seem to materialize in a waterfall of money, they began to feel, especially on the trading side, that they made a mistake.”
“We have had a few trades here today,” the trader said. “It has been grudging, though. It hasn’t been gangbusters, but we’ve had some buying opportunities out in the 13-to-18-year range where the market has actually suffered the most. There are people out there who want to pick their head up and buy some bonds. Customers are waiting for some sort of a give in the marketplace, a good adjustment, but I don’t think they are going to get it. The government interest rates are not going to give up a lot in here.”
The retail trader said the market is “running into a classical standoff between the buyers that have the money and the dealers have the bonds.”
“The buyers are still waiting, grudgingly putting some of it to work, because they can’t get paid for sitting on money,” the trader said. “I portend a very slow summer. That scares all of us here. It’s really slow and no one seems to care.”
In the new-issue market yesterday, Morgan Stanley priced $748.6 million of taxable Build America Bonds for New York City.
The bonds mature in 2017, from 2021 through 2023, and in 2027. Yields range from 4.106% in 2017, or 2.67% after the 35% federal subsidy, to 5.846% in 2040, or 3.80% after the subsidy, all priced at par.
All bonds except those maturing in 2035 are subject to a make-whole call at Treasuries plus 30 basis points.
Bonds maturing in 2035 are callable at par in 2020, and are subject to a make-whole call at Treasuries plus 35 basis points prior to the call.
Morgan Stanley also priced $151.5 million of tax-exempt general obligation bonds for New York City.
The bonds mature from 2012 through 2021, with yields ranging from 0.78% with a 2% coupon in 2012 to 3.55% with a 5% coupon in 2021. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s Investors Service and AA by both Standard & Poor’s and Fitch Ratings.
JPMorgan priced $518.1 million of GO bonds for Connecticut in two series.
Bonds from the $200 million Series B mature in 2011 and from 2014 through 2018. Yields range from 1.59% with a 2% coupon in 2014 to 2.78% with a 5% coupon in 2018. Bonds maturing in 2011 were decided via sealed bid. The bonds are not callable.
Bonds from the $318.0 million refunding Series C mature from 2012 through 2021. The series was downsized from $556.2 million during the retail order period Tuesday. Yields range from 0.83% with a 2% coupon in 2012 to 3.21% with a 5% coupon in 2021. The bonds are callable at par in 2019.
The credit is rated Aa2 by Moody’s and AA by both Standard & Poor’s and Fitch.
The Treasury market showed some losses yesterday. The benchmark 10-year Treasury note finished at 3.22% after opening at 3.18%. The 30-year Treasury bond finished at 4.10% after opening at 4.13%. The two-year Treasury note finished at 0.75% after opening at 0.74%.
A New York trader said, “Treasuries are down today, but [municipals] are not really tracking them.”
“I would say we are a tad lower today, about a basis point or two,” the trader said. “It’s still quiet today. Nothing has really changed, like the rest of the week. I don’t expect it to go up a lot tomorrow.”
The Municipal Market Data triple-A scale yielded 2.85% in 10 years and 3.69% in 20 years yesterday, following levels of 2.81% and 3.69% Tuesday. The scale yielded 4.00% in 30 years yesterday, matching 4.00% Tuesday.
Tuesday’s triple-A muni scale in 10 years was at 88.4% of comparable Treasuries and 30-year munis were at 97.3%, according to MMD, while 30-year tax-exempt triple-A GOs were at 101.8% of the comparable London Interbank Offered Rate.
Elsewhere in the new-issue market yesterday, Morgan Stanley priced for retail investors $377.8 million of GO bonds for Cook County, Ill.
The bonds mature in 2025, 2028, and 2033, yielding 4.14% with a 4.125% coupon in 2025 and 4.35% with a 4.25% in 2028. Bonds maturing in 2033 were not offered during the retail order period.
The bonds, which are callable at par in 2020, are rated Aa2 by Moody’s and AA by both Standard & Poor’s and Fitch.
Morgan Stanley priced $289.1 million of certificates of participation for Arizona.
The bonds mature from 2012 through 2029, with yields ranging from 1.27% with a 2% coupon in 2012 to 4.77% with a 5% coupon in 2029.
The bonds, which are backed by Assured Guaranty Municipal Corp., are callable at par in 2020. The underlying credit is rated Aa3 by Moody’s and A-plus by Standard & Poor’s.
In economic data released yesterday, wholesale inventories increased 0.4% in April. Inventories were revised higher for March to a 0.7% increase.
Wholesale sales rose 0.7% in April and sales in March were revised higher to a 2.6% gain from the 2.4% hike originally reported.
Economists expected wholesale sales and inventories to each increase 0.6%, according to the median estimate from Thomson Reuters.
Priti Patnaik contributed to this column.
