The municipal market welcomed the large uptick in new issuance Thursday with a hearty appetite, particularly on the competitive side.
Along the way, muni yields have been on the rise. But traders still report an overall firmer tone to the market.
“You had very good demand for competitive deals,” a trader in New York said. “I don’t think the follow-though for the secondary was as good as it usually is, though. There are a lot of dealers just sitting with the bonds. I’d say that 100% didn’t go away to customer orders — not that they ever do. We saw the good demand, but we also saw cuts in the longer end of the curve.”
The tone of the market feels stronger, even though the levels are weaker, he added.
Tax-exempt yields continue to weaken Thursday, backing away from record lows seen over the past several sessions, according to the Municipal Market Data scale.
Maturities at the front end of the curve are flat to two basis points higher. Those four years and out rose three basis points.
The 10-year yield Thursday climbed three basis points on the day to 2.12%. The 30-year yield rose three basis points to 3.70%.
The two-year yield, after holding steady for 25 consecutive sessions at its lowest level in more than 40 years, rose two basis points Thursday to 0.32%.
Treasury yields were weaker on the day. The 10-year benchmark yield jumped nine basis points to 2.09%.
The 30-year yield also increased nine basis points to 3.37%. The two-year yield rose one basis point to 0.20%.
Yields are inching up, but they’re not having much of an impact on retail investors.
As yet, the investor class is not proving sensitive to an increase of one or two basis points, a Texas trader said.
“They’re just looking for the quality of the bonds they want,” he said. “They don’t like the yields, but they have to put some money to work.”
But this week’s sizable deals are working for the crossover buyers, even at these yields. Many crossover investors have been staying short, within the five- to six-year range and in, according to the New York trader.
Volume in the primary is expected to rise from last week’s scant supply. 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.
Prices for the week’s primary issuance have seen concessions to get deals done and product moved, traders said. With nominal yields at record lows, cuts in yield are necessary to draw investors. Regardless, deals are getting done.
In the negotiated market, JPMorgan priced $365.9 million of refunding revenue bonds in three series for Florida’s JEA St. Johns River Power Park system.
The bonds, which are a mix of tax-exempt and taxable, are rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields for the first series, $311.3 million, range from 0.55% with a 5.00% coupon in 2013 to 2.69% with a 5.00% coupon in 2021. Credits maturing in 2012 were offered in a sealed bid.
The second series, $8.1 million of taxable debt maturing in 2012, was offered in a sealed bid. Yields for the third series, $46.5 million of tax-exempts, range from 0.55% with a 3.00% coupon in 2013 to 2.69% with a 4.00% coupon in 2021.
Morgan Stanley priced $250 million of Long Island Power Authority electric system general revenue bonds. The bonds are rated A3 by Moody’s, A-minus by Standard & Poor’s, and A by Fitch.
Credits maturing in 2036 are wrapped by Assured Guaranty Municipal Corp. Yields range from 1.63% with a 5.00% coupon in 2016 to 4.85% with a 5.00% coupon in 2038.
The competitive market saw some relatively large deals arrive. Bank of America Merrill Lynch won $211.2 million of Richland County, S.C., School District No. 1 general obligation refunding bonds. The bonds were rated Aa1 by Moody’s and AA by Standard & Poor’s.
Yields range from 0.43% with a 5.00% coupon in 2014 to 3.60% with a 4.00% coupon in 2027. Credits maturing in 2012, 2024, 2026, 2028, and 2029 were sold but not available.
JPMorgan won $185.1 million of Prince George’s County, Md., GO consolidated public improvement refunding bonds. The bonds are rated triple-A by the major rating agencies.
Yields range from 0.43% with a 5.00% coupon in 2014 to 2.67% with a 5.00% coupon in 2024.
Credits maturing in 2012 were offered in a sealed bid. Those maturing a year later were not formally reoffered.
