The tax-exempt market ended Thursday on a mixed note, with traders showing frustration over the different paths of the primary and secondary markets.
“We are not experiencing the run-up everyone is seeing in the taxable market,” a New Jersey trader said.
“A couple new issues are trading up,” he said, referring to bonds from the New Jersey Transportation Trust Fund Authority and the New York City Municipal Water Finance Authority. “But that’s pretty much it. Away from that, it’s pretty quiet.”
The Municipal Market Data scale showed up to a five basis point drop in yields, but the trader said, “I’m not seeing that strength in the market at this point.”
“Salesmen are getting pulled in different directions with primary and secondary,” a trader in New York said, and the primary is not seeing the type of gains the secondary is seeing.
“There is so much to look at. Not just in the front end, but in the middle and back end,” he said. “It’s hard to concentrate and there is so much inventory that salesmen are frustrated.”
The curve is started to get cheap, the trader said. Muni-to-Treasury ratios are all well above 100%. The two-year muni-to-Treasury ratio is 165.3%, the 10-year ratio is 115.1% and the 30-year ratio is 124.7%.
“We’re trying to get huge issues done and there are cheap prices, but some are running around in the secondary,” a trader in Chicago said. “So it’s like a mixed green salad.”
Overall, traders said the market handled the year’s largest week of new issuance quite well.
“The new-issue calendar was absorbed pretty well, considering we didn’t get a big backup in the market,” a second trader in New York said. “With the size of the calendar, we had a lot of people expecting it to back up. So there is decent demand for new issues.”
Munis rallied across the curve, according to the MMD scale. The three-year yield closed down one basis point while the four-year finished down three basis points. The belly of the curve experienced the biggest action as yields fell four and five basis points.
The 10-year muni yield fell four basis points, the 11-year fell three basis points, the 12-year fell two basis points, and the 13-year fell one basis point. Yields on the long end of the curve were lowered between one and two basis points.
The 10-year closed down four basis points to 2.29%, while the 30-year finished down two basis points to 3.79%. The two-year was flat at 0.42% for the 12th consecutive trading session.
Treasuries were mixed, with the front end weakening and the long end firming. The two-year yield rose two basis points to 0.28%. The benchmark 10-year fell four basis points to 1.97%, closing below 2% for the first time in a week.
The 30-year finished down five basis points, dropping below 3% for the first time since Nov. 1.
In the primary market, Bank of America Merrill Lynch priced for institutional investors $1.27 billion of Hawaii general obligation bonds in five series, following a two-day retail order period.
The credit is rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $800 million of new-money bonds, ranged from 1.56% with a 5% coupon in 2016 to 4.07% and 3.98% with 4% and 5% coupons in a 2031 split maturity. The bonds are callable at par in 2021. Yields were selectively raised between two and 13 basis points from Tuesday’s first retail order period.
Yields on the second series, $383.4 million of refunding bonds, ranged from 1.56% with 2% and 4% coupons in a 2016 split maturity to 3.13% with 3% and 5% coupons in a 2023 split maturity. The bonds are callable at par in 2021.
Bonds in the third series, $2.8 million of refunding debt, yielded 0.25% with a 2% coupon in 2012.
Credits on the fourth series, $56 million of refunding bonds, yielded 0.62% with 2%, 3%, and 5% coupons in a 2013 split maturity.
The $23 million refunding series yielded 1.24% with 2%, 3% and 5% coupons in a 2015 split maturity.
In the competitive market, triple-A rated Westchester County, N.Y., auctioned $181 million of GOs in three series.
JPMorgan won the bid for $126.9 million. Yields ranged from 0.2% with a 2% coupon in 2012 to 2.75% with a 2.75% coupon in 2023.
Citi won the remaining $29.9 million and $24.26 million components.
Yields on the $29.9 million series ranged from 0.55% with a 4% coupon in 2014 to 3.60% with a 3.5% coupon in 2031.
Credits maturing in 2012, 2013, 2020 to 2023, and 2025 were not formally re-offered. The debt is callable at par in 2021.
Bonds on the $24.3 million of federally taxable securities yielded 1.15% with a 1.3% coupon in 2016. The bonds were priced to yield 75 basis points over the comparable three-year note.
Trades reported by the Municipal Securities Rulemaking Board showed gains.
Bonds from an interdealer trade of Wilmington, Del., 4s of 2031 yielded 4.08%, four basis points lower than where they traded Wednesday.
Bonds from an interdealer trade of Austin Water and Wastewater System 5s of 2030 yielded 4.19%, 11 basis points lower than where they traded Wednesday.
A dealer sold to customer New York Liberty Development Corp. 5.75s of 2051 at 4.97%, four basis points lower than where they traded Wednesday.
