The municipal market was unchanged to slightly firmer Tuesday in a primary-driven session in which two universities led the way by bringing nearly $1.5 billion of combined debt to market.
Traders said tax-exempt yields were firmer by one or two basis points on the shorter end of the curve, with yields mostly flat out longer than 15 years.
“There’s a little bit of firmness out there, but people were mostly focused on the new issues,” a trader in New York said. “We had a couple of nice-sized deals bringing some supply into the market.”
In the new-issue market Wednesday, Morgan Stanley priced $743.2 million of taxable and tax-exempt debt for the Ohio State University in two series, including $654.8 million of taxable Build America Bonds. The BABs mature in 2040, yielding 4.91% priced at par, or 3.19% after the 35% federal subsidy, and are subject to a make-whole call at Treasuries plus 20 basis points. They are priced to yield 113 basis points over comparable Treasury yields.
The deal also contained an $88.4 million tax-exempt series, maturing from 2020 through 2032, with yields ranging from 2.80% with a 3.25% coupon in 2020 to 4.00% priced at par in 2032. The bonds are not callable. The credit is rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
JPMorgan priced $604.3 million taxable BABs for the University of Texas System Board of Regents.
The BABs mature from 2018 through 2026, with term bonds in 2030 and 2046. Yields range from 3.225% in 2018, or 2.10% after the 35% federal subsidy, to 4.794% in 2046, or 3.12% after the subsidy. The bonds are subject to an unspecified make-whole call and priced to yield between 55 and 160 basis points over the comparable Treasury yields.
The credit is rated triple-A by all three major ratings agencies.
The Municipal Market Data triple-A scale yielded 2.39% in 10 years and 3.33% in 20 years Tuesday, following 2.42% and 3.33% Monday. The scale yielded 3.72% in 30 years Tuesday, matching Monday.
“We’re picking up maybe a couple basis points in spots,” a trader in Los Angeles said. “I’m really not seeing any movement on the long end, we’re pretty flat out there, but that 10-year range has weakened quite a bit over the past week or so. We’re seeing probably a one or two basis point drop in yield.”
Tuesday’s slight short-end firmness marked the first decline in yields in nine sessions, following seven consecutive sessions of rising yields to open September before Monday’s flatness.
Before the recent sell-off, yields narrowed to all-time lows in 10-year munis 12 times in the previous 17 sessions. Meanwhile, 30-year tax-exempts set record lows four times in the previous eight sessions, while 20-year munis established all-time lows five times over the same time 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.
Friday’s triple-A muni scale in 10 years was at 86.7% of comparable Treasuries and 30-year munis were at 96.1%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 106.3% of the comparable London Interbank Offered Rate.
The Treasury market showed gains Tuesday. The benchmark 10-year note finished at 2.67% after opening at 2.75%.
The 30-year bond finished at 3.79% after opening at 3.85%. The two-year note finished at 0.50% after opening at 0.53%.
Elsewhere in Tuesday’s new-issue lineup, PNC Capital Markets priced $146.6 million of tax revenue bonds for the Pittsburgh and Allegheny County Sports and Exhibition Authority.
The bonds mature from 2011 through 2024, with term bonds in 2030 and 2035. Yields range from 1.05% with a 4% coupon in 2012 to 4.71% with a 5% coupon in 2035. Bonds maturing in 2011 were decided via sealed bid.
The bonds are callable at par in 2020 and insured by Assured Guaranty Corp. The underlying credit is rated Baa1 by Moody’s and A-minus by Standard & Poor’s.
In economic data released Tuesday, retail sales increased more than economists expected in August, rising 0.4% to post their strongest gain in five months.
Excluding auto sales, retail sales increased 0.6%, their largest expansion since March. Excluding autos, gasoline and building material, retail was up 0.5% for the month.
Economists expected 0.3% gains for August retail sales and retail sales excluding autos, according to the median estimate from Thomson Reuters.
Diane Swonk, chief economist at Mesirow Financial, said in a research note that the report suggests consumers are trying to regain some of the ground lost when the economy came to a virtual standstill last spring.
She said spending remains extremely tentative, despite recent gains.
“The level of spending, particularly on big-ticket items, remains closer to that associated with a recession rather than a recovery,” Swonk said. “The good news is that spending is so weak that pent-up demand appears to be [creating] a tailwind for spending as we enter 2011.”
Business inventories grew more than economists estimated in July, expanding 1%.
Economists expected business inventories would increase 0.5% for July, according to the median estimate.
