The massive, highly anticipated $1 billion offering from Georgia had only a mild effect on tax-exempt yields Tuesday amid an otherwise quiet municipal market.
The deals received a mixed reaction by the session’s end, traders said.
Buyers showed some reach in the serial range beyond 15 years but were reluctant on the shorter end, Municipal Market Data analyst Randy Smolik wrote in his daily commentary. And the secondary market, which saw cautious trading throughout most of the day, witnessed some concession trades for names that were trading historically rich.
“It would appear that the high-grade sector has its work cut out as Georgia bonds were reoffered at various spreads to the curve and the market waits for these bonds to clear the market,” Smolik wrote.
A trader in Pittsburgh described the Georgia deals as “typical reofferings in what has largely been a flat market today.”
Citi won $479.62 million of Georgia general obligation bonds, Series 2011A, B and C.
The first series, for $39.1 million, with coupons ranging from 3% in 2012 to 5% in 2016, was not reoffered. The second series, for $28 million, had coupons ranging from 2% in 2012 to 5% in 2021.
Yields ranged from 0.67% in 2014 to 2.63% in 2021. Bonds in the series were not reoffered in 2012 through 2013, and from 2015 through 2017.
The third series, for $412.5 million, had coupons ranging from 3% in 2012 to 5% in 2031. Yields range from 1.90% in 2018 to 4.07% in 2031. Bonds in the series were not reoffered in 2012 through 2017, or in 2023.
Bank of America Merrill Lynch placed the winning bid for $441.1 million of Georgia GO refunding bonds in three series. The bonds for each series are rated triple-A by all three major ratings agencies.
Coupons in the first series, for $69.7 million, range from 4% in 2012 to 5% in 2020. Yields ranged from 1.25% in 2016 to 2.50% in 2020. Bonds maturing in 2012 through 2015 were sold but not available.
The second series, for $245.7 million, had coupons ranging from 4% in 2012 to 5% in 2021. Yields range from 0.26% in 2012 to 2.70% in 2021. Bonds maturing in 2015, 2017, and 2020 were sold but not available.
The third series, $125.8 million, offered coupons ranging from 3% in 2011 to 5% in 2020. Yields range from 0.30% in 2012 to 2.55% in 2020. Credits maturing in 2011, 2015, and 2016 were sold, but not available.
Citi also won the smallest piece of the Georgia deal, $77 million of taxable qualified school construction bonds. The bonds also are rated triple-A.
Coupons are offered from 2017 through 2027 ranging from 2.70% to 4.30%. Yields range from 2.51% in 2017 to 4.08% in 2027. Yields were not reoffered for the years 2021, 2022 and 2027.
The Georgia deals saw good business into the afternoon, according to David Manges, managing director of municipal trading at BNY Mellon Capital Markets. But while some in the market claim the deals would set the tone for the market, Manges cautioned that it mostly affects just one part of the muni arena.
“A deal like Georgia speaks about what’s going on in the high-grade market and does not speak for what’s going on a little bit down the credit curve,” he said. “Those people who think that the MMD is a proxy for the market will be very happy with that. But the market’s larger than the MMD, and certainly larger than the state of Georgia.”
Tax-exempt yields Tuesday were steady at the short and intermediate portions of the curve, according to the MMD triple-A scale. Bonds maturing between 2029 and 2033 ended one basis point lower. Credit maturing 25 years out or later rose one basis point.
The 10-year benchmark yield stood at 2.63% for the fourth day in a row, the MMD scale showed. The 30-year yield rose one basis point on the day to 4.24%, just up from its low since Nov. 12.
The two-year yield stayed at 0.42% for the seventh consecutive day, its lowest level since Sept. 7, according to MMD numbers. Before that, it had held at 0.44% for 17 straight sessions.
But tax-exempt yields are still too low for comfort, a trader in Chicago said. The market is very selective, but firm, he added.
“On the short end, you cut things a couple basis points and maybe something gets done,” the trader said. “If you want to get something done, you have to pay the price. And a lot of people aren’t willing to do that, because they can’t replace.”
Treasury yields finished the day mostly weaker. The 10-year yield jumped three basis points to 2.99%. The 30-year yield increased two basis points to 4.22%. The two-year yield hovered at 0.38%.
The market on high-grade bonds is particularly sensitive, said a trader in Florida adding that Treasuries can only push yields so much farther.
“We haven’t reached the top yet,” the trader said. “There’s probably another 25 basis points or so of room. It seems like there’s some fragility to all the markets, and that’s got people feeling uneasy. People who are out of the market want to be in; people who are in wish they were out.”
In the negotiated market, Siebert Brandford Shank & Co. priced for institutions $260 million of Dormitory Authority of the State of New York lease revenue bonds, rated Aa2 by Moody’s Investors Service and AA-minus by Fitch Ratings.
Yields range from 0.65% in 2013 to 4.74% in 2041. Bonds maturing in 2012 weren’t reoffered.
The debt offers coupons for bonds maturing from 2012 through 2041 that range from 2% through 5%.
Investors expect new deals this week to total around $5 billion. That would make it the third week in a row in which volume has at least reached the $5 billion level.
Last week, the market saw a revised $5.11 billion, following a revised $7.8 billion the week before. The year has seen weekly averages of around $3 billion.
