The municipal market quietly ended Thursday’s session with a weaker tone as yields mostly moved in tandem with Treasuries.
There was decent, though not overwhelming, flow in the secondary market sell-off. Unenthused investors pushed up the yields on their offerings to get product moving, a trader in New York said.
“Bid-wanteds were pretty good,” he said. “We were stronger on the block-sized pieces. The market definitely had a weaker tone out there. It was just a matter of people trying to get things done.”
Tax-exempt yields saw another day of significant increases, again, particularly around the 10-year range, according to the Municipal Market Data scale. Yields were flat to six basis points weaker through eight years.
Yields for nine- to 18-year issues were up 10 to 12 basis points. Beyond 18 years they were eight or nine basis points higher.
The 10-year muni yield leapt 11 basis points Thursday to 2.55%, after surging 15 basis points Wednesday. It has risen 58 basis points from its record-low yield of 1.97% on Sept. 23.
The 30-year yield jumped eight basis points in the day’s session to 3.70%. It had increased the same amount in the previous day’s session. The two-year yield rose two basis points to 0.41%.
Treasury yields also were higher on the day, roughly in line with munis. The benchmark 10-year Treasury yield rose 11 basis points to 2.00%.
The 30-year yield has jumped 10 basis points to 2.96%. The two-year yield increased two basis points to 0.28%.
Investors, though, are in a good place to take advantage at these prices, according to a trader in Chicago.
“Investors are taking advantage of spread levels that we haven’t seen before, at least since 2008,” he said. “This is prime buying time, if you have money. And if you’ve had a portfolio over the last few years, those people are just thrilled.”
And retail investors, in particular, were among the ranks who participated on the day. “With things getting cut, retail investors were thinking that it looks OK,” the trader in New York said. “They’re buying at pretty low yields right now. If this thing sells off, they could get burned pretty good.”
In total, $8.26 billion of new issuance is expected to reach the primary market this week. Last week, the market saw a revised $7.69 billion in new supply.
On the competitive side of the market Thursday, Bank of America Merrill Lynch won $115 million of University System of Maryland auxiliary facility and tuition revenue bonds. The bonds were rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.49% with a 3.00% coupon in 2013 to 4.00% priced at par in 2029. All credits maturing between 2012 and 2031, except in 2013, 2025, 2026 and 2029, were sold but not available.
On the negotiated side of the ledger, William Blair & Co. priced $247.2 million of Cook County, Ill., general obligation refunding bonds.
The bonds were rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
Yields ranged from 1.60% with a 4.00% coupon in 2014 to 4.98% with a 5.25% coupon in 2028.
Build America Bonds stand as one sector of the market that continues to perform well, in spite of the market’s recent ups and downs.
Since the Federal Open Market Committee first broached the topic of Operation Twist a little more than two weeks ago, BABs have ridden out the storm in rate movements and remain a strong product for investors, said Citi muni analyst Mikhail Foux.
But Operation Twist did some damage. It effectively pushed down the Treasury yields on the long end, which prompted a major rally in Treasury prices. That, in turn, put pressure on spreads to BABs, up to a point.
“The rally affected yields by a lot, but did not affect spreads by much,” Foux said.
Regardless, a Wells Fargo index tracking BAB yields showed that they moved to 4.69%, lowest for the year. During the subsequent Treasury sell-off, it moved slightly higher than 5.00%, and settled at 4.87% on Wednesday, Bloomberg LP numbers show.
That’s still well below the index’s average yield for the 2011, at 5.77%.
What’s more, BABs retain the strengths that have made them attractive, according to David Abel, a director at William Blair. Those would be their subsidy and their scarcity factor.
“The market generally perceives the subsidy as a credit and security positive, which gives BABs a little bit of trading advantage over a taxable without a subsidy,” he said “And the scarcity aspect of the supply now being limited also bodes for retention of trading spreads.”
In addition, Foux said, BABs exchange-traded funds, collectively, have returned slightly more than 20% in 2011.
