Munis Firmer; 10-Years Again at Record Low

The municipal market was again firmer Wednesday as 10-year munis continued to dip to historically low levels, reaching the third record low in the past week, while the spread between 10- and 30-year Treasuries was the widest on record.

“There was some sentiment that we’d sort of stabilize at some point and stop the rallying, but it just hasn’t happened yet,” a trader in Los Angeles said. “We have a few more weeks before supply is going to pick up, which will likely make this market do an about-face and see yields come back up to more normal levels, but right now we’re seeing continued gains and a continuing firmness that’s really sort of persisted for weeks now. We’re a good three basis points better today, maybe even a little more in spots.”

The Municipal Market Data triple-A scale yielded a record-low 2.46% in 10 years and 3.55% in 20 years Wednesday, following levels of 2.51% and 3.58% on Tuesday. The scale yielded 3.88% in 30 years Wednesday, following 3.91% on Tuesday.

“We’re definitely better,” a trader in New York said. “We’re probably up two or three basis points right now.”

Wednesday’s triple-A muni scale in 10 years was at 91.4% of comparable Treasuries and 30-year munis were at 98.7%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.0% of the comparable London Interbank Offered Rate.

The Treasury market showed gains Wednesday. The benchmark 10-year note finished at 2.69% after opening at 2.76%. The 30-year bond finished at 3.93% after opening at 4.00%. The two-year note finished at 0.52% after also opening at 0.53%.

The 30-year Treasury yield at Wednesday’s close was 124.5 basis points higher than the 10-year Treasury yield, which was the widest spread since the Federal Reserve began tracking 30-year yields in 1977, according to Bloomberg LP. The record has, in fact, been broken in four straight sessions. The widest spread before 2010 was 113 basis points.

The Treasury Department auctioned $24 billion of 10-year notes with a 2 5/8% coupon at a 2.730% high yield, a price of 99.09. The bid-to-cover ratio was 3.04. The Fed banks bought $1.44 billion for their own account in exchange for maturing securities.

In the new-issue municipal market Wednesday, Morgan Stanley priced $428.9 million of taxable Build America Bonds for the Ohio Water Development Authority.

The BABs mature from 2019 through 2024, with a term bond in 2034. Yields range from 3.492% in 2019, or 2.27% after the 35% federal subsidy, to 4.879% in 2034, or 3.17% after the subsidy, all priced at par.

The bonds were priced to yield between 80 and 150 basis points over the 10- and 30-year Treasuries. Bonds maturing in 2019, 2020, and 2034 contain a make-whole call at Treasuries plus 15 basis points. Bonds maturing in 2021 and 2022 contain a make-whole call at Treasuries plus 20 basis points. Bonds maturing in 2023 and 2024 contain a make-whole call at Treasuries plus 25 basis points.

The authority is rated triple-A by both Standard & Poor’s and Moody’s Investors Service.

PNC Capital Markets priced $170.8 million of regional asset district sales tax revenue refunding bonds for the Pittsburgh and Allegheny County Sports and Exhibition Authority.

The bonds mature from 2011 through 2025, with a term bond in 2031. Yields range from 0.91% with a 4% coupon in 2012 to 4.54% with a 5% coupon in 2031. Bonds maturing in 2011 were decided via sealed bid.

The bonds, which are callable at par in 2020, are backed by Assured Guaranty Municipal Corp. The underlying credit is rated A2 by Moody’s and A-plus by Standard & Poor’s.

JPMorgan priced $150 million of gas works revenue bonds for Philadelphia.

The bonds mature from 2011 through 2025, with a term bond in 2030. Yields range from 1.35% with a 2% coupon in 2011 to 5.28% with a 5.25% coupon in 2040. The bonds are callable at par in 2020.

Bonds maturing from 2016 through 2025 were backed by Assured Guaranty Municipal. All the remaining bonds were uninsured. The underlying credit is rated Baa2 by Moody’s, BBB-plus by Standard & Poor’s, and BBB-minus by Fitch ­Ratings.

In the competitive market, Nassau County, N.Y., competitively sold $126.6 million of general improvement bonds to JPMorgan. The bonds mature from 2012 through 2026, with yields ranging from 0.56% with a 4% coupon in 2012 to 3.67% with a 4% coupon in 2026. Bonds maturing in 2014, 2016, 2017, and 2020 were not formally re-offered. The bonds, which are callable at par in 2020, are rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.

The Florida State Board of Education competitively sold $113.4 million of lottery revenue refunding bonds to Morgan Stanley. The bonds mature from 2011 through 2018, with yields ranging from 1.10% with a 5% coupon in 2014 to 2.41% with a 5% coupon in 2018. Bonds maturing from 2011 through 2013 were not formally re-offered.

The bonds, which are not callable, are rated A1 by Moody’s, AAA by Standard & Poor’s, and A-plus by Fitch.

In economic data released Wednesday, the U.S. trade deficit surged by a record dollar amount to $49.9 billion in June, the highest level since October 2008. The June deficit increased by $7.9 billion, or 18.8%, the third straight increase, following a $1.7 billion gain in May. Economists expected a $42 billion trade deficit for the month, according to the median estimate from Thomson Reuters. May’s trade deficit was revised to $42 billion from the $42.3 billion initially reported.

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