A large New York State deal seemed to offer little support or direction to the municipal market Tuesday, as tax-exempts languished amid a sleepy secondary and ended relatively flat overall.
The Municipal Market Data 10-year triple-A general obligation scale climbed one basis point to 2.99% Tuesday, while 20- and 30-year yields remained at Monday’s levels of 4.24% and 4.70%, respectively.
Municipal traders still described the market as dreary overall, even in the face of $830 million of New York GOs, the second day of a retail order period for $525 million of New York City Municipal Water Finance Authority revenue bonds, and the retail pricing of $129 million of state Metropolitan Transportation Authority dedicated tax bonds.
“The MMD change was minimal, Treasuries were flat, and the focus was on the New York State deal, the water deal, and the MTA retail order period, but away from the new-issue stuff, it was kind of quiet,” a New York underwriter said.
M.R. Beal & Co. priced the water bonds for retail, ranging from a 2.50% coupon in 2012 with a 0.51% yield, to a 5% coupon in 2043 with a 5.17% yield — well beyond the 4.70% yield on the MMD scale in 2041 at the time of the pricing.
Still, the deal lacked the yield levels on the short end where retail has focused lately, according to a New York trader. “The way it came, it’s not priced that attractively for retail,” he said.
The water bonds are rated Aa2 by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings.
The authority said it hoped to place the bonds with retail buyers, but will continue as planned with the institutional pricing on Wednesday — which traders said was much anticipated by the market in light of Tuesday’s boredom.
“It’s dull and dismal,” the New York trader said. “All the broker’s brokers are sitting there yawning and doing nothing.”
The deals that priced were “slow-moving” and left much to be desired in terms of yield by retail investors, he said, adding: “It’s very quiet, and retail is inactive in here today.”
Tuesday’s triple-A muni scale in 10 years was at 89.52% of comparable Treasuries and 30-year munis were at 105.86%, according to MMD, while 30-year tax-exempt triple-A GO bonds were at 111.64% of the comparable London Interbank Offered Rate.
In the new-issue market, Wells Fargo Securities won three of the four series from New York’s GO financing, including $478.18 million of tax-exempt new-money bonds at a true interest cost of 4.25%.
That portion of the deal ranged from a 3% coupon in 2012, which was not re-offered, to a 5% coupon in 2041, which was re-offered to yield 4.90% — 20 basis points higher in yield than the MMD scale at the time.
Another New York trader said the firm struggled with the long maturities right after the deal was done since they were not considered “retail-friendly,” but added that the firm managed to find a home for the short bonds.
Wells Fargo also won the $97.93 million series of taxable refunding bonds with a TIC of 2.4087%. Bonds ranged from a 0.30% coupon in 2011, which was not re-offered, to 4.10% coupon in 2022 priced at par. It won the $21.86 million of taxable new-money bonds with a TIC of 3.3701%. That series ranged from a 1% coupon in 2012 re-offered to yield 0.65% to a 4.05% coupon in 2021 which was re-offered at par.
Bank of America Merrill Lynch won the $232 million series of GO tax-exempt refunding bonds. The series included bonds ranging from a 5% coupon in 2011, which were sold and not re-offered, to a 3% coupon in the 2020 final maturity which was reoffered at a 3.01% yield — 25 basis points higher in yield than the comparable MMD scale.
The state’s GO are rated Aa2 by Moody’s and AA by the two other major rating agencies.
The second New York trader sensed the deals would struggle, even though they were the first sizable offerings in weeks, since there has been too much hanging over the market lately.
“The market is waiting for more supply and to see what happens in the GO political arena, and with interest rates and inflation numbers, plus we are getting closer to tax time,” he said.
“I don’t think the retail bid is that strong out there, and funds are still losing money and hoarding cash,” he said. “It’s flat and quiet. Deals are being priced. … I just don’t think there’s a whole lot of interest in the secondary.”
“There’s not really a tone to the market right now,” the second trader added. “It’s fractured. There are certain things that trade and you can’t believe it traded, and there are other things that just sit and you can’t believe it didn’t trade.”
“It’s trade by appointment and just a pretty quiet market,” he said.
Amid the slumber, Jefferies priced for retail investors $129 million of dedicated tax fund bonds for the MTA. Following the close of the order period at 5 p.m. Tuesday, the firm was expected to decide to either extend the retail pricing on Wednesday morning, or price the deal for institutions, it said.
The bonds are structured from 2011 to 2021, the latter of which carried a 5% coupon and was preliminarily priced to yield 3.70%.
Meanwhile, the Treasury market continued to be stable on Tuesday as economic data remained a distant second to concerns about Japan and political instability in the Middle East and North Africa. The benchmark 10-year note remained at 3.32% after opening at a 3.33%. The 30-year bond ended at a 4.43% after opening at a 4.44%, while the two-year note closed at a 0.65%, after opening at a 0.64%.
U.S. stocks edged lower on Tuesday following three days of gains.
In economic news Tuesday, the Bureau of Labor Statistics reported that there were 1,421 mass layoff actions in February affecting 130,818 workers — both of which are the fewest in 34 months. The number of mass layoff events in February compares to 1,534 a month earlier, 1,492 a year earlier, and 2,801 two years earlier.
In other economic news, the U.S. dollar hit a 15-month low against other major currencies when it fell 0.2% to 75.249 — the lowest since early December 2009.
