Munis See Active Trading; Yields Slip Up to 6 Basis Points

Muni trading was active as yields fell as much as six basis points Wednesday. Buyers fought for tax-exempt paper as new issuance was slight and Treasury rates fell across the curve.

“It’s a strong market,” said a trader in New York. “We saw firm to strong new-issue pricing but it’s not immediately clear why.”

Light issuance is hardly a new factor in the market — issuance through April was 53% lower than last year — but it continues to be the driving force in the ongoing rally as expectations for a surge in new volume get pushed back further and further.

“Everyday there is a little bit less offered out there,” said a trader in California. “We’re drying up in terms of supply, so if you want to go out and find anything, you’re kind of chasing it. Those who have bonds for sale aren’t listening to bids.”

Muni yields were slashed four to six basis points in the belly of the curve, while those maturing beyond 2032 fell six basis points, according to Municipal Market Data.

The benchmark 10-year yield finished Wednesday at 2.79%, its lowest since Nov. 30, 2010, and 48 basis points lower than a recent peak of 3.27% on April 11.

The two-year yield was stable at 0.54%, its lowest since Nov. 15, and the 30-year yield fell six basis points to 4.50%, its lowest since Dec. 7.

“Today’s volume overview in the municipal bond market suggests some of the heaviest trading volume seen in at least the past month,” Domenic Vonella said in a daily commentary for MMD.

Vonella noted that trading volume for blocks of $1 million or more were 110% to 120% of the one-day, five-day, and 30-day averages.

The firmer direction was consistent with the Treasury market, where the 10-year note broke through a key resistance barrier at 3.25% in early trading. It finished at 3.22% after dipping to an intraday low of 3.205% just before noon. The two-year yield fell two basis points points to 0.59% and the 30-year yield fell three basis points to 4.33%.

“Everything is pointing in the right direction,” the California trader said. “If the trends keep moving the way they are right now, we’ve got a tail wind for the first time in quite awhile.”

The 17-session rally beginning April 11 has pushed the net asset value of Vanguard’s $27.9 billion intermediate-term tax-exempt fund up 1.44%. The iShares $2.02 billion national AMT-free municipal bond fund has jumped 2.47%.

The biggest issue in muniland this week — $600 million of New Jersey Transportation Trust Fund Authority bonds — was supposed to price for institutions Wednesday, but a strong retail period Tuesday led underwriter JPMorgan to finish the sale in a single day.

That left Wednesday’s new-issue calendar looking pretty shallow in terms of large deals — a big factor that allowed several new offerings to get repriced at lower yields.

The largest issue priced was $156.5 million of Pennsylvania Higher Education Facilities Authority bonds, sold by Jefferies & Co. on behalf of Drexel University.

Rated A3 by Moody’s Investors Service and A by Standard & Poor’s, the bonds offered yields from 1.41% in 2013 to 5.38% in 2041. Yields were slashed up to seven basis points from the preliminary pricing.

A $90.3 million utility system refunding deal for Wyandotte County-Kansas City, Kan., saw longer-term yields lowered up to 15 basis points.

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