New issuance remained a conversation piece in the municipal market Tuesday, but it had to share the airwaves.
News about the potential impact on munis from language within the American Jobs Act of 2011 also filtered through the industry and rattled the market.
And though the fate of a proposal to limit to 28% the tax value of otherwise allowable deductions and exclusions — such as munis — won’t be decided for a time, it still had the industry’s full attention.
Many muni participants and analysts, though, noted that the proposal’s passage is rather unlikely.
“We don’t view this proposal as an immediate threat to municipal bond tax exemption,” Chris Mauro of RBC Capital Markets wrote in a research brief.
“The proposed limitation of deductions and exclusions would represent a significant change in the tax code. Such a change, we believe, would not be agreed to by the Senate Finance Committee and House Ways and Means Committee unless it was part of a sweeping, broad-based reform of the tax code and this kind of comprehensive reform will take a significant amount of time to put together.”
Still, the proposal made retail investors cagey and institutional investors wary, a trader in California said.
“The problem is, as the media picks up on this, all of a sudden retail says that maybe they should be buying something other than municipals,” he said. “The bill is something that’s in the works, and it’s in the back of people’s minds. I’ve talked to many large institutional customers today. And that’s not a usual conversation I would have.”
Traders’ impressions of the proposal have ranged from nervous to nonchalant, according to a trader in North Carolina.
“People are digesting the potential tax implications on munis, whether or not that comes through,” he said. “Being in the business a long, long time, there’s always been that threat, and it never comes to fruition. It’d be foolish to react off it right now.”
But the market did react to it.
“[President] Obama’s proposal on tax breaks has definitely affected the market and slowed us down a bit,” the California trader said. “The secondary very much slowed down. The primary, too.”
But overall, the new deals got done, and there was a decent amount of appetite, he added. The market, in general, was stable.
For a third straight session, muni yields jogged in place all day, holding steady across the curve, according to the Municipal Market Data scale.
Once again, there was nothing new with the benchmark 10-year yield Tuesday. It held at a record low of 2.07%, as measured by MMD.
The 30-year yield remained unchanged at 3.66% for a third session, its lowest level in at least three decades. The two-year yield stayed at 0.30% for a 24th consecutive session. At this point, it seems to have all but sprouted roots, as it is practically pinioned at its lowest level in more than 40 years.
Treasury yields ended mixed, though mostly weaker. The 10-year benchmark yield increased four basis points to 1.99%, still near a range it hasn’t seen in roughly five decades.
The 30-year yield jumped eight basis points to 3.33%. The two-year yield inched down one basis point to 0.21%.
Volume in the primary appears to be increasing gradually from last week’s trifling level.
Industry estimates place new issuance for this week at $4.65 billion, not including $5.4 billion of California revenue anticipation notes. Estimates for last week’s volume were revised downward to $1.95 billion.
In the negotiated market, Barclays Capital priced for retail $424.4 million of California State University Trustees system-wide revenue bonds.
The bonds are rated Aa2 by Moody’s Investors Service and A-plus by Standard & Poor’s.
Yields range from 0.37% with a 2.00% coupon in 2012 to 4.23% with a 4.125% coupon in 2031. Debt maturing from 2024 through 2026, from 2028 through 2030, and in 2036 and 2042 are not available for retail.
Bank of America Merrill Lynch priced $161.5 million of Wisconsin Health and Educational Facilities Authority revenue bonds. The bonds are rated A1 by Moody’s, and A-plus by Standard & Poor’s and Fitch Ratings.
Yields range from 1.36% with a 2.50% coupon in 2013 to 5.40% with a 5.25% coupon in 2039. Credits maturing in 2012 were offered in a sealed bid.
Citi was busy on the competitive side of the ledger. The firm won the biggest deal expected this week: $451 million of New York City Municipal Water Finance Authority second general resolution revenue bonds.
The bonds were rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields range from 3.86% with a 5.00% coupon in 2032 to 4.08% with a 5.00% coupon in 2044. Debt maturing in 2034 was not formally re-offered.
Citi also won $146.7 million of Missouri Board of Public Buildings special obligation refunding bonds. The bonds are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields range from 0.48% with a 4.00% coupon in 2014 to 4.00% with a 1.00% coupon in 2028. Debt maturing in 2013, and from 2015 through 2017, was not formally re-offered.
