The tax-exempt market ended Monday on the same quiet note it began as muni yields remained steady and limited primary activity couldn’t provide meaningful direction.
A few of the week’s largest deals were pre-marketed and priced for retail, but the majority of the new issuance is expected to come later this week.
“Munis are fairly quiet this afternoon,” a New York trader said. “There are bits and pieces getting done, but you have to choose your battles. Nothing is much cheaper. It’s flat to maybe one basis point cheaper just to get a trade done.”
Another New York trader agreed. “Not much is going on in munis,” he said. “It’s very quiet.”
Munis were mostly steady, according to the Municipal Market Data scale. Yields inside 11 years were steady while yields on the 12- to 20-year fell one basis point. Outside 21 years, yields were flat.
On Monday, the 10-year and the 30-year yield finished steady at 1.86% and 3.15%, respectively. The two-year yield was flat at 0.32% for the 12th straight session.
Treasuries were mixed as the yield curve flattened. The benchmark 10-year yield fell one basis point to 1.58% and the 30-year yield dropped three basis points to 2.67%. The two-year yield rose one basis points to 0.30%.
In the primary market, Citi issued a pre-marketing wire for $750 million of Massachusetts School Building Authority senior dedicated sales-tax refunding bonds, rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings. The deal is expected to price Tuesday.
Yields ranged from 2.07% with 3%, 4% and 5% coupons in a split 2021 maturity to 3.09% with a 5% coupon in 2030. The bonds are callable at par in 2022.
A spokesman for the authority said the deal is all refunding, with no new funds being raised for projects, and is expected to achieve 6% or greater present-value savings.
Jefferies & Co. priced for retail $680.5 million of New York City Municipal Water Finance Authority water and sewer system second general resolution revenue bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields on the first series, $630.5 million, ranged from 1.85% with 4% and 5% coupons in a split 2020 maturity to 3.85% with a 3.75% coupon in 2034. Credits maturing in 2024, 2028, 2033 and 2045 were not offered for retail. The bonds are callable at par in 2022.
Bonds in the $50 million second series yielded 0.80% with a 5% coupon in 2017 and 1.30% with a 5% coupon in 2019. Credits maturing in 2017 are callable at par in 2015. Credits maturing in 2019 are callable at par in 2017.
“The water deal is going OK,” the New York trader said. “It was priced a little rough for retail. I’m not sure how excited they are going to get. But we have a couple orders in from our retail guys here. But no one is jumping through hoops to get it. It was priced well, but that’s just where the market is.”
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming over the past week.
A dealer sold to a customer Dormitory Authority of the State of New York 5s of 2026 at 2.83%, 15 basis points lower than where they traded last Thursday.
Bonds from an interdealer trade of Montgomery County, Texas, 5s of 2026 yielded 2.79%, three basis points lower than where they traded last week.
Bonds from another interdealer trade of San Francisco Public Utilities Commission 4s of 2039 yielded 4.13%, one basis point lower than where they traded last week.
Looking at trades just over a one-day period, munis showed strengthening, according to trades compiled by data provider Markit.
Yields on Illinois’ Metropolitan Pier and Exposition Authority 0s of 2051 and Alabama’s Auburn University 5s of 2036 each dropped three basis points to 5.62% and 3.48%.
Yields on Massachusetts Water Pollution Abatement Trust 5s of 2017 and California Statewide Communities Development Authority 5s of 2042 each fell one basis point to 0.87% and 4.11%.
Over the past week, muni-to-Treasury ratios have fallen on the short end as munis outperformed Treasuries and became relatively more expensive.
The two-year muni yield to Treasury yield ratio plunged to 106.7% on Monday from 114.3% the week before. The 10-year ratio dropped slightly to 117.7% from 118.8% the previous Monday.
But ratios on the long end rose as munis underperformed Treasuries and became relatively cheaper. The 30-year ratio increased to 118% on Monday from 116.9% the previous Monday.
Over the course of the month, ratios have fallen across the curve and look relatively expensive compared to their taxable counterparts.
The two-year ratio dropped from 123.1% at the beginning of June while the 10-year ratio fell from 119.9% at the start of the month. The 30-year ratio has fallen from 120.6% on June 1.
In other municipal bond news, CUSIP Global Services said municipal CUSIP requests rose 6% from April to May with 1,729 identifier requests made during the month.
The firm said the May monthly report on CUSIP requests tracks the issuance of new security identifiers and is an early indicator of debt activity. The increase in muni CUSIP requests suggests continued strength in the U.S. municipal bond market.
The increase in May is the fourth consecutive monthly gain for municipal CUSIP orders, the firm said, and the best month since October 2010, when 1,747 identifier requests were made. Year to date, requests are up 56% to 7,242 from the 4,641 orders made over the same time period in 2011.
