The municipal market was mostly weaker Thursday, with 10-year tax-exempt yields backing up roughly eight basis points, amid light to moderate secondary trading activity.
“We’re seeing a full scale reversion to the mean now,” a trader in New York said. “We were hanging out down at unsustainably low levels for quite some time, and it was bound to turn around. That turnaround has been in effect a good week now, and I don’t see any reason why it’s going to stray from that until we give back a lot of August’s gains.”
The Municipal Market Data triple-A scale yielded 2.40% in 10 years and 3.33% in 20 years Wednesday, following 2.32% and 3.33% Tuesday. The scale yielded 3.72% in 30 years Wednesday, matching Tuesday.
Tax-exempts have now opened September with an uptick in yield in at least one of the three maturities during the month’s first six sessions after doing so in just one session in August.
Before the recent sell-off, yields dropped to all-time lows in 10-year munis on 12 occasions in 17 sessions. Also, 30-year tax-exempts set record lows four times the prior eight sessions, while 20-year munis established all-time lows five times during the same period.
The record lows currently stand at 2.17% and 3.67% in 10- and 30-year tax-exempts, both established Aug. 25. The 20-year low of 3.28% was set Aug. 31.
“We’re probably down a good three to five basis points overall, but 10-year yields could be off as much as eight basis points,” a trader in Los Angeles said Thursday. “It’s definitely a weaker feel out there today. There isn’t a whole lot of movement on the long end, but it’s a weaker market.”
Thursday’s triple-A muni scale in 10 years was at 86.4% of comparable Treasuries and 30-year munis were at 96.5%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 109.7% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Thursday.
The benchmark 10-year note was quoted near the end of the session at 2.76% after opening at 2.60%.
The 30-year bond was quoted near the end of the session at 3.84% after opening at 3.66%.
The two-year note was quoted near the end of the session at 0.57% after opening at 0.47%.
The Treasury Department Thursday auctioned $13 billion of 30-years with a 3 7/8% coupon at a 3.820% high yield, a price of 100.97. The bid-to-cover ratio was 2.73. Federal Reserve banks also bought $140.6 million for their own account in exchange for maturing securities.
In the new-issue market Thursday, the Florida State Board of Education competitively sold $222.2 million of lottery revenue refunding bonds to Bank of America Merrill Lynch.
The bonds mature from 2012 through 2020, with yields ranging from 0.65% with a 4% coupon in 2012 to 2.82% with a 5% coupon in 2020.
The bonds, which are not callable, are rated A1 by Moody’s Investors Service, AAA by Standard & Poor’s, and A-plus by Fitch Ratings.
Piper Jaffray & Co. priced $139.8 million of taxable and tax-exempt bonds for the Colorado Springs Utilities System in two series, including $21.9 million of taxable Build America Bonds.
The BABs mature from 2016 through 2024, with term bonds in 2030 and 2040. Yields range from 2.781% priced at par in 2016, or 1.81% after the 35% federal subsidy, to 5.467% priced at par in 2040, or 3.55% after the subsidy.
The bonds were priced to yield 70 to 200 basis points more than comparable Treasury yields, and are callable at par in 2020.
The $117.9 million tax-exempt series matures from 2011 through 2029, with term bonds in 2031 and 2033. Yields range from 0.53% with a 0.6% coupon in 2011 to 4.15% with a 4% coupon in 2033. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Trades reported Thursday by the Municipal Securities Rulemaking Board showed losses.
A dealer sold to a customer taxable Massachusetts BAB 5.31s of 2030 at 4.89%, up two basis points from where they were sold Wednesday.
A dealer bought from a customer taxable Pennsylvania BAB 4.65s of 2026 at 4.29%, up three basis points from where they were sold Wednesday.
A dealer sold to a customer taxable California BAB 7.5s of 2039 at 6.92%, two basis points higher than Wednesday.
A dealer sold to a customer taxable Bexar County, Tex., Hospital District BAB 5.41s of 2040 at 5.62%, one basis point higher than where they were sold Wednesday.
A dealer sold to a customer taxable Chicago 6.21s of 2032 at 6.13%, even with Wednesday.
Bonds from an interdealer trade of taxable Sonoma County, Calif., 6s of 2039 yielded 6.11%, up one basis point from where they were sold Wednesday.
Bonds from an interdealer trade of Dormitory Authority of the State of New York 4.9s of 2031 yielded 4.90%, up one basis point from Wednesday.
In economic data released Thursday, initial jobless claims decreased to 451,000 for the week ending Sept. 4.
Continuing claims for the week ending Aug. 28 also fell to 4.478 million.
The figures came in below the expectations of economists, who projected 470,000 initial claims and 4.450 million continuing claims, according to the median estimate from Thomson Reuters.
