Munis End Firmer, Following Treasuries

The tax-exempt market firmed Wednesday, following Treasuries, as buyers continued their holiday shopping for new bonds.

Munis had a “pretty firm tone,” a trader in New Jersey said. “They followed Treasuries to some extent. And we did feel pretty firm improvement, and the bottom line is, we always lag the Treasury market. And we were two to three basis points lower in yield. And that’s impressive. But we are not getting the eight or 10 basis points we had been getting.”

By afternoon, when most of the primary issuance had been gobbled up, the secondary started to slow. “It’s pretty selective and slowing down in the secondary,” a trader in New York said. “I think people got new issuance out of the way Tuesday and earlier [Wednesday].”

 The “majority of volume is from new issuance being passed through at this point,” he added. Interest is also focused in the belly of the curve.

The end of the year is also on traders’ minds.

“Yields are drifting lower as Treasuries are, but it seems like some of the accounts are well lined up going into yearend and things are starting to wind down,” the trader said.

“It’s a bit busy,” a second trader in New York said. “We still have people getting a little aggressive, trying to lighten up going into year-end, but the bid side is holding it up here.”

Munis were firming across the board, according to the Municipal Market Data scale. Yields on the five- and six-year muni fell one basis point while the seven- to 24-year yields dropped two basis points. The 25- to 29-year yields were cut three basis points and the 30-year yield plummeted four basis points.

On Wednesday, the two-year muni yield closed flat at 0.36% for its sixth consecutive trading session. The 10-year yield fell two basis points to 1.94% and the 30-year yield fell four basis points to 3.64%.

Treasuries rallied Wednesday. The benchmark 10-year yield fell seven basis points to 1.90% and the 30-year yield plummeted 11 basis points. The two-year yield increased one basis point to 0.25%.

In the primary market, Wells Fargo Securities opened its first day of retail on $160 million of Puerto Rico Infrastructure Financial Authority revenue bonds. The bonds are rated Baa1 by Moody’s Investors Service and BBB by Standard & Poor’s. A second retail pricing opportunity and institutional pricing are expected Thursday.

Yields on the Series 2011B bonds, not subject to the alternative minimum tax, ranged from 2.38% with a 4% coupon in 2014 to 4.86% with a 5% coupon in 2025. Credits maturing in 2026 were not offered for retail. The bonds are callable at par in 2021.

Siebert Brandford Shank & Co. priced $484.7 million of Detroit water supply system revenue bonds in two series. The credit is rated A1 by Moody’s and A-plus by Standard & Poor’s.

Yields on the first series, $382.4 million of water supply system revenue bonds, ranged from 0.83% with a 3% coupon in 2012 to 5.38% with a 5.25% in 2041. The bonds are callable at par in 2021.

Yields on the second series, $102.3 million of water supply system revenue refunding bonds, ranged from 0.83% with a 3% coupon in 2012 to 5.34% with a 5% coupon in 2041. The bonds are callable at par in 2021.

Wednesday morning, Wells Fargo priced for institutions $223.4 million of District of Columbia income tax secured revenue bonds.

The deal was originally scheduled to be a competitive transaction but was switched to negotiated after 100% of Tuesday’s $200 million of district income tax-secured bonds sold to retail investors.

“We decided to change the sale Wednesday to a negotiated sale due to an offer from the underwriters on Tuesday’s negotiated retail sale to underwrite the bonds to be offered Wednesday at very favorable pricing for the district,” said Lasana Mack, the city’s treasurer and deputy chief financial officer.

The credit is rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings.

Yields ranged from 3.09% with a 5% coupon in 2026 to 3.91% with a 5% coupon in 2036. The bonds are callable at par in 2021. Yields on the retail pricing Tuesday ranged from 0.30% with a 2% coupon in 2012 to 4% priced at par and 3.98% with a 5% coupon in a 2036 split maturity.

“D.C. was a good case in point,” said the New Jersey trader, referring to how well the primary was digested Wednesday. “The deal was increased and lowered yields as much as seven basis points on certain maturities. So it was well received.”

In the competitive market, JPMorgan won the bid for $158.4 million of Florida State Board of Education capital outlay refunding bonds. The credit is rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.

Yields ranged from 0.50% with a 2% coupon in 2013 to 4.05% with a 4% coupon in 2032. The bonds are callable at par in 2021.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming across the curve.

On the shorter maturities, bonds from an interdealer trade of King County, Wash., School District 5s of 2023 yielded 2.65%, four basis points lower than where they traded Tuesday.

Going out a little longer, a dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2030 at 2.31%, eight basis points lower than where they traded Tuesday.

A dealer bought from a customer Bucks County, Pa., Water and Sewer Authority 5s of 2037 at 4.39%, six basis points lower than where they traded Tuesday.

On the long end, bonds from an interdealer trade of New York City Transitional Finance Authority 5s of 2044 yielded 4.23%, five basis points lower than where they traded Tuesday.

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