Activity in the tax-exempt market picked up in the afternoon after buyers sat on the sidelines Wednesday morning.
“There was more action and we saw it on the short end,” a trader in New York said. “We saw more offerings out there and, at least on our end, saw some buyers come back into the market now that Treasuries aren’t selling off so much anymore.”
On Wednesday, munis finished steady across the curve with a one basis point rise in yields on the long end, according to the Municipal Market Data scale. Yields on maturities beyond 20 years rose one point. The two- and 10-year closed flat at 0.42% and 2.28%, respectively. The 30-year rose one basis point to 3.66%.
Treasuries were choppy during the day. A big sell-off in the morning forced Treasury yields to open up 13 basis points on the long end. But by the close, losses had been pared and yields on the long end finished only six basis points higher.
By the close on Wednesday, the two-year yield ended flat at 0.24%. The 10-year closed four basis points higher at 2.00% and the 30-year yield increased six basis points to 3.03%.
“Initially Treasuries were selling off, which caused some cheaper muni trades,” MMD analyst Randy Smolik wrote. “Without leadership from Treasuries, munis dwelled on the hefty supply of this week’s primary deals.”
Earlier in the afternoon, market consensus said Wednesday was a catch-up day, both from a big rally following Tuesday’s Treasury moves and from digesting a large amount of deals that came to market.
“I think the muni market is taking a breather from [Tuesday],” a trader in Florida said. “The aggressiveness we saw yesterday was being pulled along with Treasuries, and now Treasuries are taking a breather, so guys are on the sidelines.”
In the competitive market, “everything was on the light side so there was nothing we could glean leadership from,” the trader said. On the negotiated side, it was “the same type of story,” as market participants waited to see the allotments from Tuesday’s Connecticut general obligation deal and the New York Liberty Development Corp. deal. “That will set the tone going out today,” the trader said.
“Generally speaking, after the big bumps we saw [Tuesday], the market is trying to see if we really believe them or not,” a trader in Los Angeles said. “The muni market is searching for what is the correct level.”
On the long end, spreads are widening. “We did a deal yesterday and the long term bonds were done at a generous spread,” the trader said. Lower-rated credits may be spreading out too. “The thought is, MMD is looking at pure triple-A trades and anything that is not triple-A is spreading out wider.”
The Florida trader agreed, saying he saw weakness in the early afternoon on the back end.
“The joke is, who would have thought a year ago that the U.S. market would be completely driven by Greece?” the Los Angeles trader said. “It’s up and down each day and back and forth.”
The Federal Open Market Committee also said Wednesday it plans to continue Operation Twist and keep the federal funds rate target at a zero to 0.25% range.
Operation Twist supports a stronger economic recovery and helps keep inflation at a reasonable level, members said. The federal funds rate will likely remain low through mid-2013 as economic conditions are not likely to improve.
The trader in New York said the FOMC subconsciously allowed investors to get more comfortable with the market. “People realize it’s not all that great, but it could be worse potentially,” he said. “So I think people are trying to separate Europe and the U.S.”
In the negotiated market, JPMorgan priced $567.3 million of North Texas Tollway Authority special projects system revenue bonds. The bonds are rated AA by Standard & Poor’s and AA-minus by Fitch Ratings. Yields ranged from 2.59% with a 5% coupon in 2019 to 4.24% with a 5% coupon in 2032. The bonds are callable at par in 2021.
Morgan Keegan & Co. priced $237.7 million of Metropolitan Government of Nashville and Davidson County bonds in two series. The bonds are rated AA-plus by Standard & Poor’s and Fitch.
Yields on the first series, $100 million of electric system revenue bonds, ranged from 0.54% with a 3% coupon in 2013 to 3.93% with a 5% coupon in 2036. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Yields on the second series, $136.8 million of electric system revenue refunding bonds, ranged from 0.54% with a 3% coupon in 2013 to 3.29% with a 5% coupon in 2026. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Morgan Keegan priced $184.4 million of Virginia Resources Authority bonds in two series.
Yields on the first series, $129 million of infrastructure revenue bonds, ranged from 0.49% with a 3% coupon in 2013 to 3.78% with a 5% coupon in 2041. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021. They are rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s.
Yields on the second series, $55.4 million of state moral obligation revenue bonds, ranged from 0.57% with a 4% coupon in 2013 to 4.00% with a 5% coupon in 2041. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021. They are rated Aa2 by Moody’s and AA by Standard & Poor’s.
Morgan Stanley priced $145.6 million of debt for United States Steel Corp. projects through seven conduit issuers in seven series. The largest, $40 million issued via the Indiana Finance Authority, matures in 2019, yielding 6.00% priced at par. The debt is rated B1 by Moody’s and BB by Standard & Poor’s and Fitch.
In the competitive market, U.S. Bancorp won $86.5 million of San Francisco refunding certificates of participation, rated Aa3 by Moody’s, AA-minus by S&P and A-plus by Fitch. Yields ranged from 1.00% with a 2% coupon in 2012 to 2.42% with a 5% coupon in 2018.
In the secondary market, some trades reported by the Municipal Securities Rulemaking Board Wednesday showed softening. Bonds from an interdealer trade of Massachusetts School Building Authority 5s of 2041 yielded 4.07%, three basis points higher from where they traded Tuesday.
