The belly of the curve received some support Wednesday in an otherwise quiet session that saw tax-exempt yields return to pre-earthquake levels.
Municipal bond yields rose at least one basis point for maturities between seven and 13 years, including a three basis point move for nine-year bonds, according to the benchmark Municipal Market Data triple-A scale.
The scale for 10-year tax-exempts moved up two basis points to 3.01%. That contributed to an 11 basis point climb seen since March 16 when it yielded just 2.90% — the lowest since early December.
Municipal bonds benefited from a flight to safety in the wake of the Japanese earthquake and subsequent tsunami, but as the nuclear facilities cooled and global markets calmed down, munis followed suit and slowly returned to the period of quietude.
A research note from Piper Jaffray & Co. quoted Shakespeare in describing the volatility of last week as “full of sound and fury, signifying nothing.”
The expectation from some traders is that muni yields will now remain steady until a decent amount of supply provides some direction and allows for price discovery.
“Unfortunately, with no leadership from the primary, we are fairly rudderless,” a trader in New Jersey said.
The two-year tax-exempt remained at 0.61% Wednesday and the 30-year was flat at 4.70%, according to MMD.
The New York City Municipal Water Finance Authority was the biggest player in the new-issue market as M.R. Beal & Co. priced $529.7 million of its debt for institutions.
A trader in New York said the deal received plenty of support in the two-day retail period on Monday and Tuesday, when more than $280 million of the bonds were sold.
“Institutional are the buyers these days, but retail could be coming back,” he said.
Demand from institutional investors was somewhat thin Wednesday, causing the underwriters to raise the offered yields on long bonds despite a relatively flat day.
“They had to increase the yields in certain spots yesterday and again today,” the New York trader said.
The water and sewer system revenue bonds maturing in 2043 offered a 5.20% yield to institutional investors, three basis points higher than in the retail period. The trend was reversed on the short-end though: notes maturing in 2012 yielded 0.49%, two basis points lower than in Tuesday’s retail period.
The bonds carry ratings of AA-plus from Standard & Poor’s and Fitch Ratings and Aa2 from Moody’s Investors Service.
A trader in New Jersey said the deal had little impact on yields, which are instead moving in the direction of the broader fixed income market.
He called the New York water deal “nothing for the market,” adding that it only appears sizable because of how lackluster issuance has been in 2011.
Year-to-date issuance as of Friday was just less than $40 billion — roughly half the issuance in the same period last year and on track to be lowest quarter in 11 years, according to Citi.
Treasury bonds 10 years and out rallied in the morning but reversed direction in early afternoon trading and remained weaker at the close. The benchmark 10-year note finished at 3.35%, two basis points up from Tuesday’s close and five basis points weaker than at mid-morning.
The 30-year bond ended at 4.45%, one basis point higher than Tuesday’s finish. The two-year note weakened in the morning and deteriorated as the day moved forward, ending at 0.67%, or four basis points higher than Tuesday’s finish.
Elsewhere in the new-issue market, Oregon sold $178.9 million of lottery revenue bonds, rated AAA by Standard & Poor’s and Aa2 by Moody’s.
Morgan Stanley priced the offer in three series: tax-exempt, tax-exempt refunding, and federally taxable.
Series A offered yields from 3.68% in 2023 to 4.57% in 2031, with an optional par call at the 10-year mark. The Series B refunding bonds offered yields from 2.79% in 2019 to 3.29% in 2021, and aren’t callable.
The taxable bonds mature in 2021 and 2022. They offered 4.345% and 4.495%, respectively.
Montgomery, Ohio, also came to market with $100 million of tax-exempt revenue bonds for Miami Valley Hospital and Premier Health Partners. The Barclays Capital-led deal was rated Aa3 by Moody’s and AA-minus by Fitch.
Yields ranged from 1.65% in 2012 to 4.93% in 2023. They are callable at par in 2020.
In the competitive market, Massachusetts sold $360 million of general obligation bonds through JPMorgan. Rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch, the bonds offered 3.48% in 2022 maturities and up to 4.34% for 2029 maturities.
Bank of America Merrill Lynch also competitively sold $225 million of consolidated bonds subject to the AMT for the Port Authority of New York and New Jersey. The coupons offered range from 3% in 2012 to 5% in 2028. Yields were not available at press time.
In fresh economic data, new home sales took a massive tumble in February to a record low.
Sales fell 16.9% last month to an annualized rate of 250,000. Economists had anticipated a slight uptick in sales to a pace of 290,000.
The median sales price for new homes dropped 13.9% versus the prior month to $202,100, or 8.9% below levels from one year ago. Only two months ago, the median sales price was $236,800.
“Without any meaningful supply in the pipeline, new home sales will remain depressed for the foreseeable future,” said Deutsche Bank economist Joseph LaVorgna. “Housing starts, permits, and existing home sales will ultimately be better barometers of underlying housing health.”
