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Market Post: Muni Traders Turn Focus to Primary Market

NEW YORK – The tax-exempt market was preparing for a large week of new issuance expected to price Tuesday and Wednesday as attention turn to the primary market.

“It’s a little busy,” a New York trader said. “And the focus will be on the primary.”

Munis were steady to slightly firmer Tuesday morning, according to the Municipal Market Data scale. Yields inside seven years were steady while the eight- to 12-year yields fell one basis point. Outside 13 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 weaker after a stronger session Monday. The benchmark 10-year yield rose four basis points to 1.62% while the 30-year yield increased three basis points to 2.70%. The two-year was steady at 0.30%.

In the primary market, Citi is expected to price $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.

In pre-marketing on Monday, 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.

Jefferies & Co. is expected to price for institutions $680.5 million of New York City Municipal Water Finance Authority water and sewer system second general resolution revenue bonds, following a retail pricing Monday. The bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

In retail pricing, 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.

JPMorgan is expected to price $580 million of Louisiana general obligation bonds in two series, rated Aa2 by Moody’s and AA by Fitch.

Seattle-Northwest Securities is expected to price $500 million of Idaho tax anticipation notes.

RBC Capital Markets is expected to price $315.2 million of Hamilton County, Ohio, health facilities revenue bonds, rated Baa1 by Moody’s and BBB-plus by Standard & Poor’s.

In economic news, housing starts fell 4.8% to a seasonally adjusted annual rate of 708,000 in May from a revised 744,000 in April. Building permits climbed 7.9%, the highest in nearly four years, to 780,000 from the revised 723,000 in April.

The May housing starts fell short of the 720,000 figure projected by economists while building permits beat the 727,000 number economists had predicted.

“Through the volatility induced by multi-family starts, we see a clear pattern of gains in single-family housing starts and permits and the level of permits relative to starts suggests some further gains in the months ahead,” wrote economists at RDQ Economics. “Our take is that the housing sector is stabilizing and that residential construction activity is beginning to pick up at a modest rate. We see nothing in this report to suggest this view is overly optimistic. Although coming off low levels, starts by housing type and building permits have gained at a double-digit pace over the last 12 months.

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