The municipal market paused Wednesday morning to absorb Federal Reserve chairman Ben Bernanke’s testimony before the House.
Then it shrugged and went about its business as the Dormitory Authority of the State of New York priced for institutions $866 million of personal income tax bonds, the largest deal of the week.
On the day, muni yields disregarded the message and tone of the first of two days of congressional testimony from Bernanke. Larger competitive deals in the primary were offered at low yields. The secondary saw relatively sparse trading.
Bernanke told the House Financial Services Committee that the Fed is prepared to act, to either tighten or loosen monetary policy, if necessary.
In response, Treasury yields rose throughout the day, though not dramatically, before settling lower. But the Fed chairman’s remarks gave risk assets a little boost, with the prospect that it might be open to a third round of quantitative easing, said Michael Pietronico, chief executive of Miller Tabak Asset Management.
“From the perspective of the municipal market, it generally is not going to have a direct influence unless it brings Treasury rates much higher,” he said. “And it doesn’t look to be doing that to any great degree. So, from the muni market’s perspective, it’s a non-story today. It’s more of an equity-market and commodity-market story.”
The main equities indexes responded by all rising at least 1.05% initially. By the close, though, they had settled at more modest gains.
Muni yields reacted, as well. But instead of rising, they were firmer along much of the curve Wednesday, according to the Municipal Market Data scale. They were steady for maturities in 2012 through 2014, 2019 through 2021, and at the long end of the curve.
Yields for maturities between 2015 and 2018 fell one to three basis points. Munis maturing from 2022 through 2035 inched one basis point lower.
“In munis right now, even though the secondary’s very quiet, I don’t think [Bernanke’s testimony] had any effect on the bid side of the market,” a trader in New Jersey said.
Munis are in their own world, he added, which has often left them subject to their own particular market forces.
“It takes more than one day of Treasuries getting hit to have an effect on our side,” he said. “What hasn’t changed with us is that even though it’s quiet on the retail side, we still have a supply issue — not enough product coming into the market. Until that changes, we’re going to have some market insulation out there for munis. But we’ve been afforded that market insulation for a while.”
The benchmark 10-year muni yield held steady Wednesday at 2.66% for a second session. It rests 32 basis points beneath its average for 2011. The 30-year yield also remained unchanged for a second day at 4.30%, or 32 basis points under its average for the year. The two-year yield also hovered at 0.40% for a second consecutive day after 20 straight sessions at 0.42%, and another 17 at 0.44%. It stands at its nadir for the year and 20 basis points below its average for 2011.
Treasury yields closed lower. They struggled throughout the day in the wake of Bernanke’s testimony before finding their footing. Yields inched downward one basis point across the curve. The 10-year yield closed at 2.88%.
The 30-year yield ended the day at 4.17%. The two-year yield dropped to 0.36%.
In the new-issue market, Wells Fargo Securities added close to $149 million to the DASNY PIT deal following the retail order period that concluded Tuesday, bringing the total to $866.1 million. The bonds are rated AAA by Standard & Poor’s and AA by Fitch Ratings.
Yields fell five to seven basis points on the short end from the retail to the institutional pricing. They fell seven basis points for 20-year maturities. Yields range from 0.82% with a 4.00% coupon in 2014 to 4.68% with a 5.00% coupon in 2041.
The retail period saw healthy demand. “We had approximately $400 million in retail orders,” said Portia Lee, DASNY managing director of public finance. “Not all are usable. We will know the final amount once allotments are made.”
Wednesday’s repricing seemed just as promising, according to MMD analyst Randy Smolik. It offered, he wrote, “attractive concessions to encourage good order flow.”
In the competitive market Wednesday, Bank of America Merrill Lynch won $224 million of Florida State Board of Education public education capital outlay refunding bonds. The bonds were rated Aa1 by Moody’s Investors Service, and AAA by Standard & Poor’s and Fitch.
Yields range from 2.50% with a 5.00% coupon in 2019 to 4.10% with a 4.00% coupon in 2028. Credits maturing from 2013 to 2018, from 2020 to 2022, and in 2029 were sold, but not available.
Bank of America Merrill also won $167 million of Charleston County, S.C., general obligation capital improvement transportation sales tax bonds. The bonds are rated triple-A by Moody’s and Standard & Poor’s.
Yields range from 2.30% with a 5.00% coupon in 2019 to 3.90% with a 4.00% coupon in 2029. Bonds maturing from 2012 to 2018, as well as 2023 and 2024 were sold, but not available.
