Trading Robust With Active Secondary

Well-priced new issuance and a “fully active” secondary on Wednesday fueled another robust day in the municipal market.

“It was a strong market today,” a trader in New York said. “High grades traded actively.”

A collective new issuance of revenue bonds from two California authorities set the tone. Yields fell as much as 20 basis points in the seven-year range and up to 12 basis points in the 10-year range from the retail order period on the day.

Muni yields declined across all but the front of the curve Wednesday, according to the Municipal Market Data scale. They were steady in 2012, but firmed three basis points from that point through 2015. Beyond four years, they fell six or seven basis points. The largest drop — seven basis points — occurred in the six- to 23-year range.

The benchmark 10-year yield dropped seven basis points Tuesday to 2.00%. This lowered its ratio to Treasuries even further, to 98.51% from 106.37% two days ago, putting it firmly below 100%. It now sits close to the 2011 calendar-year average of 97.25%.

The muni-Treasury ratio has gotten richer recently, falling almost 20 percentage points in nine sessions, since Nov. 23, and almost 30 percentage points from its calendar-year high of 128.42%, achieved on Oct. 5.

The two-year yield skipped down three basis points to 0.36%. The 30-year yield fell six basis points to 3.70%.

While muni yields rode a strong downward push, Treasury yields underperformed on the day, falling less dramatically as a whole. The benchmark 10-year yield tumbled five basis points to 2.03%.

The two-year yield inched down one basis point to 0.25%. The 30-year yield also ticked down one basis point to 3.07%.

Primary market volume is expected to weigh in around the $6 billion range this week.

Industry estimates for anticipated market volume total $5.82 billion, against a revised $5.88 billion last week.

No particularly large bond deals are expected. Much of the week’s supply that has arrived has been absorbed into the marketplace, with little left over.

“The expectation is that we’re going to come to the yearend close in the primary market very soon; what you have now is probably what you’re going to have going into the new year,” a trader from California said. “If you like the market, you’re going to buy more, make sure you have your shelves stocked.”

In one of the largest bond deals of the week in the negotiated market, Barclays Capital Wednesday priced $443.8 million of Puerto Rico Public Finance Corp. 2011 Series B commonwealth appropriation bonds.

The bonds are rated Baa2 by Moody’s Investors Service and BBB-minus by Standard & Poor’s. Yields range from 4.67% with a 6.00% coupon in 2024 to 5.50% priced at par in 2031.

Morgan Stanley priced $346.8 million of California Health Facilities Financing Authority Series 2011D and California Statewide Communities Development Authority Series 2011C revenue bonds. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch Ratings.

Yields for the first series, $310.3 million of Series 2011D bonds, range from 2.25% with a 5.00% coupon in 2018 to 4.95% with a 5.00% coupon in 2035.

Yields for the second series, $36.5 million of Series 2011C bonds, ranged from 2.25% with a 3.00% coupon in 2018 to 4.57% with a 5.25% coupon in 2031.

JPMorgan priced for retail $181.4 million of Iowa Finance Authority state revolving fund revenue bonds. The bonds are rated triple-A by the major rating agencies.

Yields range from 0.42% with a 3.00% coupon in 2013 to 3.40% with a 3.00% coupon in 2029 in a split maturity. Debt maturing in 2012 was offered in a sealed bid. Credits maturing in 2024, 2026 through 2028, 2030, and 2031, as well as those split maturities in 2025 and 2029, were not offered to retail.

A couple of large notes sales paced the competitive side of the ledger. JPMorgan led the way winning $226.3 million of Louisville-Jefferson County, Ky., Sewer District sewer and drainage system subordinated bond anticipation notes.

The notes are rated MIG-1 by Moody’s, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch. The notes offered an effective rate of 0.779% with a 2.50% coupon.

Wells Fargo Securities won $138.9 million of Hudson County, N.J., bond anticipation notes. The notes are rated MIG-1 by Moody’s.

They offered an effective rate of 0.708% with a 2.00% coupon. The credits were not formally re-offered.

The muni bond market also has one eye toward the crucial European Union summit in Brussels, taking place on Thursday and Friday. The outcome is certain to affect investor confidence and the U.S. bond markets.

Investors are looking for any indications that European leaders can resolve the Euro zone’s aggravating and destabilizing debt crisis.

If there is a collapse in the talks, disappointing the markets, Treasuries stand to benefit, the California trader said. Subsequently, the muni market could see some positive spillover.

But if the talks are productive, which, he added, the market feels is largely unlikely, then Treasury yields would feel some upward pressure.

“If the market perception of a resolution to the problems in Europe is not just a band-aid approach but one that really solves the problems, that would have some effect on Treasuries and cause a rise in yields,” the trader said.

“Given all of that, everybody looks at the market and feels relatively positive going forward,” he said. “That’s why we’ve seen bumps in MMD this week, even while Treasuries haven’t been performing that well.”

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