A lackadaisical municipal market saw modest gains on Thursday. Supply that is considered low by current if not historical standards has created a malaise over trading volume, a trader in Chicago said.
Accordingly, buyers feel they can pick and choose from the primary market, he added.
“You’re not seeing any heavy selling,” the trader said. “The block market is nonexistent. And there’s apathy. Every time we reach this threshold where 30-year munis are below 5%, you find mutual funds don’t want to book the yields. It’s eventually going to correct itself, but it’s just painful going through it.”
After days of stagnation, tax-exempt yields started to rally Thursday, according to the Municipal Market Data. The short end of the yield curve was unchanged, while the intermediate portion was flat to two basis points lower. Long-term maturities firmed one basis point.
The 10-year benchmark yield hovered at 2.63% for the sixth day in a row, the MMD scale showed. The 30-year yield ticked down one basis point to 4.23%, once again reaching its low since Nov. 12.
The two-year yield is holding — at 0.42% for the ninth consecutive day — at its lowest level since Sept. 7, according to MMD numbers. Before that, it stayed at 0.44% for 17 straight sessions.
Treasury yields, though, firmed across the curve. The 10-year yield plunged seven basis points to 2.92%. The 30-year yield fell four basis points to 4.18%. The two-year yield dipped two basis points to 0.36%.
The secondary market has had more active days, a trader in New Jersey said. The dearth of particularly large new issues this week, with the notable exception of the $1 billion of competitive Georgia issuance, goes some way toward explaining the recent drought in the secondary market.
Thus, most new supply is smaller and several times oversubscribed, the trader said. And as a result, the secondary market is quiet, as traders are focusing more on new issues and committing to positions for longer periods of time.
“If you commit to a position here, chances are, if you wait it out, you’ll get your price,” the trader said. “Even if the market is poor, you’ll see the bid size go down, but it’s not like anyone is hitting the bid.”
Traders have been holding onto their bonds because they know supply is an issue. And if they cannot replenish their supply easily, they won’t relinquish those positions.
“It’s really hard to buy bonds in this market right now,” the trader said. “There aren’t enough bonds in the secondary market to chase around all that much.”
In the day’s negotiated deals, Morgan Stanley priced $102.6 million of Massachusetts Educational Financing Authority loan revenue bonds. The debt is rated AA by Standard & Poor’s and A by Fitch Ratings. Coupons range from 4% in 2017 to 5.625% in 2033. Yields range from 3.56% in 2017 to 5.75% in 2033.
Barclays Capital priced $93.96 million of University of Illinois Board of Trustees auxiliary facilities system revenue bonds in two series. The bonds for both series, tax-exempt and taxable, were rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s.
Coupons in the tax-exempt series, for $83.1 million, range from 3% in 2014 to 5.25% in 2041. Yields range from 1.45% in 2014 to 5.29% in 2041. Bonds maturing in 2012 were offered via sealed bid.
The taxable series, for $10.9 million, was priced to yield 120 to 160 basis points over comparable Treasury yields for credit maturing between 2012 and 2021.
On the competitive side of the ledger, Wells Fargo Securities won $150.2 million of Florida Department of Transportation turnpike revenue bonds. The bonds are rated double-A minus by all three agencies. Coupons range from 3.25% to 5.25% from 2015 to 2041. Yields range from 1.45% in 2015 to 4.85% in 2039. Debt maturing from 2012 through 2014 was not formally re-offered.
In all, investors expect around $5 billion in new issuance this week. Last week, the market saw a revised $5.11 billion, following a revised $7.8 billion the week before. For the year, new deals have averaged around $3 billion.
The market was still adjusting to the Georgia deals from earlier in the week, according to MMD analyst Randy Smolik.
“There was little doubt that the residual balances of this week’s $920 million Georgia general obligation loan bogged down trading in the 10-year range and shorter,” he wrote. “But we did see evidence that Georgia can distribute at modest adjustments to the curve.”
In economic news, the Labor Department reported that in the week ending June 18, the number of seasonally adjusted initial jobless claims increased by 9,000 to 429,000 from the previous week’s revised 420,000. The four-week moving average was 426,250, unchanged from the previous week’s revised average of 426,250.
The number of claims for the week was higher than estimated by various economists polled by news organizations. They had either expected the number of claims to fall from last week’s figure, or to rise by a smaller amount.
New home sales for May fell 2.1% to a seasonally adjusted annual rate of 319,000, a record-low number of new homes for sale, the Commerce Department reported Thursday. Sales in April were revised higher to 326,000 from 323,000.
