The municipal market met a heavy load of new supply head on Tuesday and held its ground. Yields, already presumed to be too low recently by market participants, only ticked lower.
The market appears to have room for the new supply, but always at the right price, a trader in California said.
“There was a lot of skepticism about whether or not the scales should be severely cheapened, and today proved that the rates are here to stay at these ugly, low levels,” he said.
Muni yields firmed from the middle of the curve on out, according to the Municipal Market Data scale. The muni yield curve continued to flatten Tuesday as yields were steady out to seven years. Beyond that, they were one or two basis points lower.
The 10-year muni yield ticked down one basis point to 2.12%, or five basis points up from the all-time low recorded early last week. The 30-year yield fell two basis points to 3.65%, and the two-year yield stayed at 0.32% for a fourth straight session.
Treasuries were mixed on the day, though weaker as the curve flattened to the right. The benchmark 10-year Treasury yield inched down one basis point to 1.94%.
The 30-year yield dropped two basis points to 3.20%. The two-year yield ticked up one basis point to 0.17%.
By midday, yields in the back-end of the curve were flattening. But there weren’t many offerings there, a Florida trader said.
In the high-grade space, investors were waiting for that larger crossover buyer to re-enter the marketplace at the beck and call of attractive ratios. But there wasn’t a lot of chasing to that point, he added.
“If it’s a round peg into a round hole, then we’re getting a trade,” the Florida trader said. “If not, then there’s a lot of swapping going on to rearrange deck chairs.”
The market expects volume to be up substantially this week, at roughly twice the typical amount this year. The industry anticipated $8 billion will come to market. That’s up from the average $4.6 billion issued weekly thus far in 2011, and last week’s revised $6.2 billion.
In the primary market, Bank of America Merrill Lynch priced the biggest deal of the week, $2.51 billion of California tax-exempt various-purpose general obligation and refunding bonds in two issues. The bonds are rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings.
Yields for the first series, $1.26 billion of tax-exempt various-purpose GOs, range from 1.13% with a 3.00% coupon in 2015 to 4.80% with a 5.00% coupon in 2041. No more orders were accepted for some maturities in 2015 through 2022, and 2028.
The yields stand 69 basis points higher than MMD at the five-year mark, and 113 basis points higher at the 30-year mark.
Yields for the second series, $1.25 billion of tax-exempt GO refunding bonds, range from 0.67% with a 3.00% coupon in 2013 to 4.57% with a 5.00% coupon in 2031.
Credits maturing in 2012 are offered in a sealed bid. No more orders are being accepted for debt in two maturities in 2022, as well as for debt maturing in 2029 through 2031.
The yields stand 69 basis points higher than MMD at the five-year mark, and 115 basis points higher at the 20-year mark.
Taking a note or two from retail investors’ appetite over the past two sessions, institutions took to the Golden State deal, according to the California trader.
“It looks like they bumped some of the yields out at the long end,” he added. “That’s a good sign of some decent demand there. The Cal deal gave a good barometer for where yields should be for that kind of paper.”
Goldman, Sachs & Co. priced $510. 4 million of Harris County, Texas, Metropolitan Transit Authority sales and use tax bonds in two series. The bonds were rated Aa2 by Moody’s and AA by Standard & Poor’s.
Yields for the first series, $461 million of sales and use tax bonds, range from 0.78% with a 5.00% coupon in 2015 to 4.18% with a 5.00% coupon in 2041.
Yields for the second series, $49.4 million of sales and use tax contractual obligations, range from 0.45% with a 4.00% coupon in 2013 to 3.00% with a 5.00% coupon in 2023. Credits maturing in 2012 were offered in a sealed bid.
Citi priced $404.5 million of Arizona’s Salt River Project Agricultural Improvement and Power District electric system refunding revenue bonds. The bonds are rated Aa1 by Moody’s and AA by Standard & Poor’s.
Yields range from 0.42% with a 2.00% coupon in a split maturity in 2013 to 3.69% with a 5.00% coupon in a split maturity in 2030. There are no more orders for debt maturing in various split maturities in 2013 through 2018, 2020, 2022, and 2030.
JPMorgan priced $195.5 million of Metropolitan Washington Airports Authority system revenue refunding bonds in two series. The bonds were rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields for the first series, $185.6 million, range from 0.92% with a 3.00% coupon in 2013 to 4.52% with a 5.00% coupon in 2028. Debt maturing in 2012 was offered in a sealed bid.
Yields for the second series, $9.9 million, range from 0.40% with a 2.00% coupon in 2012 to 4.22% with a 5.00% coupon in 2031.
In the competitive market, JPMorgan won $170 million of Florida Department of Environmental Protection Florida Forever revenue refunding bonds. The bonds are rated A1 by Moody’s, AA-minus by Standard & Poor’s and A by Fitch.
Yields range from 0.65% with a 4.00% coupon in 2013 to 3.10% with a 5.00% coupon in 2022. Credits maturing in 2017 were not formally reoffered.
