Tax-exempt yields rose precipitously for the third consecutive session Wednesday, with 30-year yields again reaching 15-month highs as purchasers were overwhelmed and deterred by the barrage of new-issue supply hitting the primary this week.
Traders said tax-exempt yields were higher by about eight to 10 basis points overall, with weakness extending to roughly 12 to 15 basis points on the long end.
“It’s difficult to hold your positions and be strong with so many bonds coming into a market that was already kind of on a slide,” a trader in Chicago said. “The market is saturated right now, but it’s going to come back like a bungee cord when it clears.”
A New York trader described the market as “terrible” Wednesday, noting that a number of deals have been pulled this week due to market conditions.
“There are just too many bonds and not enough buyers,” the New York trader said. “It’s going to take a long time to work through this [oversupply]. People just don’t know how many more sellers are out there. People would buy if the market had some predictability, but there isn’t any right now.”
The Municipal Market Data triple-A scale yielded 3.01% in 10 years Wednesday, eight basis points higher than Tuesday’s 2.93%, while the 20-year scale yielded 4.15%, 12 basis points more than Tuesday’s 4.03%. The scale for 30-year debt climbed 12 basis points to 4.62% Wednesday from 4.42% Tuesday.
The MMD 30-year triple-A scale has now increased by 70 basis points since last Monday to its highest level in 15 months, since when it was also 4.62% on Aug. 13, 2009.
Meanwhile, 20-year debt is at its highest level since July 30, 2009, when it yielded 4.16%, and 10-year yields are at their highest level in seven months, since April 20, when the yield was also 3.01%, according to MMD.
“It doesn’t feel good out there,” a trader in Los Angeles said. “If you have a lot of inventory, you’re trying to get rid of it, and if you don’t, you’re trying to pick up some cheap ones on the bid side.”
Wednesday’s triple-A muni scale in 10 years was at 104.9% of comparable Treasuries and 30-year munis were at 107.7%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 116.7% of the comparable London Interbank Offered Rate.
Wednesday’s new-issue market was to be led by California’s institutional pricing of $10 billion of revenue anticipation notes, but the pricing was delayed until Thursday due to the state needing to disclose a lawsuit. The suit, filed Tuesday, challenges a plan to sell and then lease back from the private owner 24 state-owned buildings at 11 sites, according to a release from the treasurer’s office.
Instead, California extended its retail order period into a third day, with orders being taken until 8 p.m. Eastern Standard Time Wednesday. The delay also prompted officials to push back pricing $2 billion of taxable Build America Bonds to Friday from Thursday.
During Monday and Tuesday’s retail order period on the notes, California sold 58.9% of the offering, a total of $5.89 billion. A total of $1.46 billion was sold to retail Tuesday and $4.43 billion was sold Monday.
Of the notes maturing in May, $822.7 million was sold to retail, while $5.07 billion of debt maturing in June went to retail. During Tuesday’s order period, $259.1 million and $1.21 billion, respectively, were sold to retail after $563.6 million and $3.86 billion Monday.
According to the California treasurer’s office, prices quoted to investors during the retail period were 1.25% for the May maturity and 1.50% for the June maturity.
Though the municipal market has endured significant weakness over the past several weeks, those problems have mostly skipped past shorter maturities.
The 30-year triple-A yield curve has increased 76 basis points since Nov. 1, according to MMD. Additionally, 20-year yields have risen 67 basis points in November, while the 10-year scale has increased 50 basis points over the same period. The short-end of the curve has been strong by comparison, with the triple-A one-year scale climbing just seven basis points this month.
The California Rans are rated MIG-1 by Moody’s Investors Service, SP-1 by Standard & Poor’s, and F2 by Fitch Ratings. California’s long-term GO ratings stand at A1 from Moody’s and A-minus from Standard & Poor’s and Fitch.
Elsewhere in the new-issue market Wednesday, Kentucky’s Louisville and Jefferson County Metropolitan Sewer District competitively sold $330 million of taxable BABs to Goldman, Sachs & Co.
The BABs mature in 2043, yielding 6.25% priced at par, or 4.06% after the 35% federal subsidy, and contain a make-whole call at Treasuries plus 25 basis points.
The credit is rated Aa3 by Moody’s and AA-minus by both Standard & Poor’s and Fitch.
Bank of America Merrill Lynch priced $332.2 million of North Texas Tollway Authority revenue bonds, downsized from an originally planned $541 million due to market conditions.
The bonds mature in 2034, 2038, and 2043, yielding 6.00%, 6.15%, and 6.25%, respectively, all with 6% coupons. The bonds, which are callable at par in 2021, are rated A2 by Moody’s and A-minus by Standard & Poor’s.
The Treasury market showed some losses Wednesday. The benchmark 10-year note finished at 2.88% after opening at 2.84%. The 30-year bond finished at 4.30%, after opening at 4.26%. The two-year note finished at 0.50% after also opening at 0.50%.
