The municipal market never really got off of the couch Thursday.
Yields hovered at Wednesday’s levels as a few small deals cleared the primary market and several modest trades trickled out of the secondary.
Heavy new issuance for the week set the tone for the secondary on the day, a trader in North Carolina said.
“The flows were anemic,” he said. “But actually there was more attention to the secondary market, based on all the primary getting done. Certainly, going into this long weekend, a week chock-full of a pretty good amount of supply, it was a fairly quiet day.”
Tax-exempt yields were steady across the curve Thursday, according to the Municipal Market Data scale. The two-year, 10-year and the 30-year triple-A yields each closed the day’s session flat, at 0.33%, 1.83% and 3.14%, respectively.
Treasury yields rose modestly across the curve Thursday. The benchmark 10-year Treasury yield increased two basis points to 1.77%.
The 30-year yield also skipped up two basis points to 2.86%. The two-year yield ticked up one basis point to 0.31%.
Primary market deals pushed up yields in the secondary as some bases widened throughout the week, the North Carolina trader said.
“We priced some secondary items that needed to adjust in price, due to where some of the primary stuff was issued this week,” he said. “We did see some cuts there, but they probably needed to be cut in order to get some attention.”
Traders saw this week as a shortened one, as an early close that settled over desks Thursday is recommended for Friday ahead of the Memorial Day holiday. The industry still predicts primary issuance numbers for the week will end substantially higher.
Muni volume predictions hold that $9.19 billion will reach the market, compared with $6.83 billion that turned up last week.
Most of the week’s large deals hit the market on Tuesday and Wednesday.
In the negotiated market, Morgan Stanley priced $115 million of Ohio revitalization project bond anticipation notes in two series: tax-exempt and taxable. The notes are rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s and F-1-plus by Fitch Ratings.
Yields for the tax-exempt series, $100 million, are 0.35% priced at par. Yields for the taxable series, $15 million, are 0.55% priced at par. The notes in both series are callable anytime at par.
Barclays Capital priced $108.7 million of Guam business privilege-tax bonds in both tax-exempt and taxable series. The bonds are rated A by Standard & Poor’s and A-minus by Fitch.
Yields for the tax-exempt series, $81.3 million, range from 3.50% with a 5.00% coupon in 2026 to 4.19% with a 5.00% coupon in 2042. The bonds are callable at par in 2022.
Yields in the taxable series, $27.4 million, range from 2.933% at par in 2017 to 4.883% at par in 2026. Those maturities are priced 220 and 315 basis points over the comparable Treasury yields.
The largest deal in the competitive market belonged to Goldman, Sachs & Co., which won $86.9 million of New York Local Government Assistance Corp., a public benefit corporation of the state of New York, subordinate-lien refunding bonds. The bonds are rated Aa2 by Moody’s and AAA by Standard & Poor’s.
Yields range from 1.85% with a 5.00% coupon in 2021 to 2.72% with a 3.00% coupon in 2025. Debt maturing in 2013 was offered in a sealed bid.
Credits maturing in 2014 through 2020 were sold but not available. The bonds are callable at par in 2022.
The market should expect some short-term cash will be available soon, as some short-term note deals are revving up, a trader in New York said.
“So, the one-to-two-year space will see action here for about a week and then come right back down again,” he added.
On the long end in the primary, the week’s gigantic $949.5 million of New York City general obligation bonds closed up, he said. Therefore, traders might soon see the New York GOs free to trade in the secondary market.
“You might see some of those bonds out there,” the trader said. “It would be nice to see; we could use the flow, at least.”
Muni ratios to Treasuries mostly fell, but remained in cheap territory this week, MMD numbers indicate.
At the short end, the two-year has seen a rise of three percentage points since last Friday, to 106.5%, the biggest increase over the period.
The 10-year and 30-year ratios both fell by one percentage point since last Friday, to 103.4% and 109.8%, respectively. With ratios across the curve above 100%, munis look attractive, a second trader in New York said, regardless of the low absolute level of yields.
“We have a neutral view on the market,” he added. “We’re not super-excited about rates here, but we think ratios are OK. The market doesn’t have to be super-excited about the market to do better.”
In economic news, the Labor Department reported Thursday that seasonally adjusted initial jobless claims fell to 370,000 for the week ending May 19. Continuing claims declined to 3.260 million for the previous week.
The initial claims number for the week declined 2,000 from the previous week’s upwardly revised level of 372,000. Continuing claims for the week ending May 12 slipped 29,000 from the previous week’s revised level of 3.289 million.
Economists polled by Thomson Reuters projected initial claims would be 370,000 and continuing claims would be 3.250 million.
