The municipal market was firmer Thursday amid light to moderate activity in the secondary market as Utah offered more than $1 billion of taxable and tax-exempt debt.
Traders said tax-exempt yields were lower by one or two basis points overall as 20-year muni yields matched a record low and 30-year tax-exempts edged to within two basis points of its low, according to Municipal Market Data.
“There isn’t a whole lot of movement, but we’re definitely feeling firmer,” a trader in Los Angeles said.
“It’s actually fairly flat on the shorter end, but outside of 10 years or so, we’re about a basis point or two better,” the trader said. “Probably not more than that.”
In the new-issue market today, Utah sold $1.04 billion of tax-exempt and taxable debt in two series.
Goldman, Sachs & Co. priced $622.0 million of taxable Build America Bonds for Utah.
The BABs mature in 2019, 2020, 2021, and 2025, yielding 3.189%, or 2.07% after the 35% federal subsidy, 3.289%, or 2.14% after the subsidy, 3.369%, or 2.19% after the subsidy, and 3.539%, or 2.30% after the subsidy, all priced at par.
The bonds were priced to yield between 65 and 100 basis points over the comparable Treasury yield, and are subject to a make-whole call at Treasuries plus 10 basis points for bonds maturing from 2019 through 2021, and at Treasuries plus 15 basis points in 2025.
JPMorgan also priced $413.8 million of tax-exempt general obligation bonds for Utah.
The bonds mature from 2011 through 2017, with yields ranging from 0.48% with a 2% coupon in 2012 to 1.74% with a 4% coupon in 2017. Bonds maturing in 2011 were decided via sealed bid and are not callable.
The credit is rated triple-A by each of the three major rating agencies.
The MMD triple-A scale yielded 2.31% in 10 years on Thursday, or two basis points lower than Wednesday’s close, while the 20-year scale yielded 3.28%, or one basis points lower than Wednesday’s level, matching a record low. The scale for 30-year debt shed one basis point, dropping to 3.69%.
“It’s just sort of following Treasuries a little bit at this point,” a trader in New York said. “We’re probably better a basis point or two overall, maybe three in spots.”
The strengthening builds on gains experienced since Tuesday. The three-day rally marks a reversal of the trend that marked the previous three weeks, in which muni yields rose from a series of record lows in late August.
Yields on the 10-year and 30-year triple-A scale bottomed out at 2.17% and 3.67%, respectively, on Aug. 25. The 20-year low of 3.28%, which was matched Thursday, was originally set Aug. 31.
Thursday’s triple-A muni scale in 10 years was at 91.4% of comparable Treasuries and 30-year munis were at 98.9%, according to MMD, while 30-year tax-exempt triple-A GOs were at 109.5% of the comparable London Interbank Offered Rate.
The Treasury market showed gains Thursday.
The benchmark 10-year note was quoted near the end of the session at 2.55% after opening at 2.56%, which puts it closer to the calendar year low of 2.47% recorded at the start of this month.
The 30-year bond was quoted near the end of the session at 3.74% after opening at 3.75%. Its 52-week low of 3.51% was set Aug. 26.
The two-year note was quoted near the end of the session at 0.43% after opening at 0.44%. It yielded a record low 0.416% in intraday trading Tuesday afternoon.
“The tolerance of investors to put money to work at record low levels, which we reached at several points of the yield curve back in August, just forced some buyers to turn the switch and say, 'This is far enough,’” said James Colby, senior municipal strategist at Van Eck Global. “As cash accumulates, you wait for an opportunity to leg back into the market at higher yields.”
Colby sees little danger of tax-exempt supply outstripping demand anytime soon. Cash continues to flee money market funds and equity mutual funds, he said, with the bond market being the prime beneficiary.
“With BABs in the marketplace [it] creates the view that the demand-supply imbalance, in favor of demand, for the muni market will continue.”
In economic data released Thursday, the composite index of leading economic indicators rose for the second straight month in August, increasing 0.3% to 110.2, the Conference Board reported Thursday.
The gain followed an unrevised 0.1% uptick the previous month.
Economists polled by Thomson Reuters predicted the LEI would be up 0.1% in August.
Existing home sales rebounded in August from a record low in July, rising 7.6% to a seasonally adjusted annual rate of 4.13 million, the National Association of Realtors reported Thursday.
Sales rebounded from a 3.84 million pace in July, which was the lowest since the NAR started the current index of existing home sales in 1999.
Initial jobless claims rose to 465,000 for the week ending Sept. 18, from a revised 453,000 the previous week, the Labor Department reported Thursday.
Continuing claims fell to 4.489 million from 4.537 million for the week ending Sept. 11.
Economists expected 450,000 initial claims and 4.450 million continuing claims, according to the median estimate from Thomson Reuters.
