The municipal market rallied to all-time lows Wednesday for the 12th time in the past three weeks, pushing 10-year tax-exempt yields below 2.20% and 30-year munis lower than 3.70% for the first time in history.
Traders said tax-exempt yields were better by three to five basis points overall amid light to moderate secondary trading activity.
“The demand for muni paper is just constant,” a trader in Los Angeles said. “It’s already becoming harder to find paper out in the Street. There is a need for new issuance, but it’s not coming this week.”
The trader said yields are being compressed by a flight to quality among investors unsettled by the volatile stock market and negative economic news. Wednesday was marked by economic reports for new home sales and durable goods that suggested economic growth was slowing.
“It’s another day, another record,” the trader said. “And I’m not sure we’re scraping the bottom just yet.”
The Municipal Market Data triple-A scale yielded record lows of 2.17% in 10 years and 3.30% in 20 years Wednesday, following 2.23% and 3.34% Tuesday. The scale yielded an all-time low of 3.67% in 30 years Wednesday, following 3.70% Tuesday.
Wednesday’s levels mark the 12th all-time low in the past 14 sessions for 10-year munis. The day also saw 20- and 30-year tax-exempts reached record lows for the fourth time in five sessions.
Wednesday’s triple-A muni scale in 10 years was at 89.6% of comparable Treasuries and 30-year munis were at 104.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 115.6% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Wednesday. The benchmark 10-year note finished at 2.54% after opening at 2.49%, the 30-year bond finished at 3.59% after opening at 3.56%, and the two-year note finished at 0.52% after opening at 0.49%.
The Treasury Department auctioned $36 billion of five-year notes with a 1 1/4% coupon, a 1.374% high yield, and a price of 99.40. The bid-to-cover ratio was 2.83. Federal Reserve banks bought $881.4 million for their own accounts in exchange for maturing securities.
Six municipal bond exchange-traded funds touched all-time highs Wednesday.
Muni ETFs attempt to replicate the performance of a benchmark index, providing a theoretical real-time proxy for investors’ assessment of where muni indexes are heading.
Funds reaching new apexes today included ETFs devoted to indexes tracking two Build America Bond indexes, and Standard & Poor’s indexes following tax-free municipals maturing respectively in 2014, 2015, and 2016.
A half-dozen other funds reached 52-week highs, though not all-time highs. These included ETFs devoted to indexes tracking the Barclays Capital AMT-Free Long Municipal Index, the Barclays Capital Municipal Managed Money Index, two short-term indexes from Barclays and Standard & Poor’s, and a Merrill Lynch index tracking long-term insured bonds in New York.
In the new-issue market Wednesday, Bank of America Merrill Lynch priced $176.7 million of bonds for the New Mexico Finance Authority in two series.
Bonds from the $96.4 million Series A-1 mature from 2011 through 2022 with term bonds in 2024. Yields range from 0.45% with a 3% coupon in 2012 to 2.91% with a 5% coupon in 2024. Bonds maturing in 2011 were decided via sealed bid. The bonds are callable at par in 2020.
Bonds from the $80.3 million Series A-2 mature from 2013 through 2021, with yields ranging from 0.74% with a 3% coupon in 2013 to 2.64% with a 3% coupon in 2021. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
RBC Capital Markets priced $202.7 million of taxable and tax-exempt state highway capital improvement revenue bonds for the Oklahoma Capitol Improvement Authority in two series, including $92.1 million of taxable BABs.
The BABs mature from 2021 through 2023 with a term bond in 2025. Yields range from 4.242% in 2021, or 2.76% after the 35% federal subsidy, to 4.792% in 2025, or 3.11% after the subsidy, all priced at par. The bonds were priced to yield between 175 and 230 basis points over the comparable Treasury yield. The bonds are callable at par in 2020.
The deal also contained a $110.6 million tax-exempt series, which matures from 2012 through 2020. Yields range from 0.52% with a 2% coupon in 2012 to 2.61% with a 5% coupon in 2020. The bonds are not callable.
The credit is rated AA by both Standard & Poor’s and Fitch Ratings.
New Hampshire competitively sold $150 million of taxable and tax-exempt debt in two series.
A $60 million series of taxable BABs was sold to JPMorgan with maturities ranging from 2021 through 2030. Yields range from 3.30% with a 3.5% coupon in 2021, or 2.15% after the 35% federal subsidy, to 4.40% with a 4.5% coupon in 2030, or 2.86% after the subsidy. The bonds were priced to yield between 66 and 157 basis points over the comparable Treasury yields.
The state also sold $90 million of tax-exempt GO debt to Citi with maturities ranging from 2012 through 2020. Yields range from 0.25% with a 5% coupon in 2012 to 2.13% with a 5% coupon in 2020. The bonds are not callable. The credit is rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
In economic data released Wednesday, new orders for durable goods increased 0.3% in July due to large gains in nondefense aircraft and auto purchases. However, orders excluding transportation sank 3.8% to post the largest drop in 18 months as demand for machinery plunged a record 15%. Economists expected declines of 1.2% for all durable goods and 0.9% for orders excluding transportation good, according to the median estimate from Thomson Reuters.
“Today’s report would seem to answer the question of just how much of the investment in the first half of the year represented replacement equipment and how much represented businesses getting ready to hire,” said Ellen Beeson Zentner, a senior economist with the Bank of Tokyo-Mitsubishi. “Today’s data implies that it was nearly all replacement equipment and now businesses are back to conducting little spending and little hiring.”
New home sales fell 12.4% in July to a record low of 276,000 sales at a seasonally adjusted annual rate as sale prices also dropped. Records for this series date back to 1963. Economists expected 330,000 home sales for the month, according to the median estimate from Thomson Reuters.
Dan Seymour contributed to this column.
