With a lighter new-issue calendar, the tax-exempt market started off on a good note as some of the week’s largest deals were priced Tuesday.
Most deals saw yields reduced during repricings as traders noted that lighter volume this week allowed dealers to unload leftover supply from previous weeks.
“We have a couple of deals that are going quite well today,” a Los Angeles trader said. “So there is a focus on that. But there is a feeling nationally that this week is a lighter calendar than we’ve had over the last few weeks, and so there is an opportunity to clean up some deals. But the secondary is still pretty sleepy out there.”
He added that most of the direction in munis is coming from supply and demand, and that the euro zone events aren’t having an impact. “I don’t see anything from Greece,” the trader said. “It’s pretty much a nonevent. Certainly we are seeing it in Treasuries and we underperformed for a long period of time, but it’s not really on the radar screen.”
With all the attention on supply and demand, it has been a little disappointing that the June reinvestment money hasn’t pushed muni prices higher, he said. “So there’s hope that July and August will be better. But given the last couple weeks’ focus has been on the primary, we just aren’t getting enough activity in the secondary.”
Another trader Tuesday morning said activity was showing more signs of life. “It’s a little busy,” a New York trader said. “And the focus will be on the primary.”
Munis ended steady, according to the Municipal Market Data scale. The 10-year and the 30-year yield finished flat at 1.86% and 3.15%, respectively, for the third consecutive trading session. The two-year yield was flat at 0.32% for the 13th straight session.
The Treasury yield curve steepened as bonds on the long end were weaker after a stronger session Monday. The benchmark 10-year yield rose four basis points to 1.62%, while the 30-year yield jumped six basis points to 2.73%. The two-year yield fell one basis point to 0.29%.
In the primary market, Citi priced $766.1 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.
Yields ranged from 2.12% with 3%, 4% and 5% coupons in a split 2021 maturity to 3.06% with a 5% coupon in 2030. The bonds are callable at par in 2022.
Jefferies & Co. priced 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.
Yields on the first series of $607.7 million ranged from 1.83% with 4% and 5% coupons in a split 2020 maturity to 4.09% with a 4% coupon and 3.70% with a 5% coupon in a split 2045 maturity. The bonds are callable at par in 2022. Yields were lowered as much as two basis points from retail pricing.
Bonds in the $50 million second series yielded 0.75% with a 5% coupon in 2017 and 1.25% 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. Yields were lowered five basis points from retail pricing.
Seattle-Northwest Securities priced $500 million of Idaho tax anticipation notes, rated SP-1-plus by Standard & Poor’s. The bonds yielded 0.20% with a 2% coupon in 2013.
Morgan Stanley priced and repriced $311.1 million of Philadelphia Hospitals and Higher Education Facilities Authority revenue bonds for Temple University Health System, rated Ba1 by Moody’s and BBB-minus by Standard & Poor’s and Fitch.
Bonds on the first series of $219.2 million yielded 5.80% with a 5.625% coupon in 2036 and 5.875% with a 5.625% coupon in 2042. The bonds are callable at par in 2022.
Yields on the second series of $91.9 million yielded 3.625% with a 5% coupon in 2015 to 4.70% with a 6.25% coupon in 2023. Bonds maturing in 2023 are callable at par in 2017. Yields were lowered five and 12 basis points from preliminary pricing.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on New Jersey Tobacco Settlement Financing Corp. 4.625s of 2026 rose five basis points to 5.75%, while Illinois 5s of 2027 rose one basis point to 3.15%.
Other trades showed firming. Yields on Palm Beach County, Fla., public improvement 5s of 2020 fell two basis points to 2.02%. Yields on Los Angeles Unified School District 5s of 2027 and Dormitory Authority of the State of New York 5s of 2025 each fell one basis point to 2.87% and 2.77%, respectively.
Analysts at Markit also noted that so far this year, spreads on East Coast states are widening versus the generic triple-A yield, while spreads on some West Coast states are compressing or not widening as much as those on the East.
Spreads from Jan. 31 to June 18 on New York City triple-A bonds widened 12 basis points to 52 basis points while Rhode Island triple-A spreads widened 10 basis points to 55 basis points. Spreads on triple-A New Jersey bonds widened eight basis points to 40 basis points.
During that same time period, triple-A spreads on Nevada bonds compressed 10 basis points to 65 while California spreads widened only five basis points to 80.
“Given the market strength year to date, I think absolute yields on higher credit states on the east coast became too low,” said Keith Singh, an associate of municipal evaluated bonds at Markit. “Investors demanded a wider spread for east coast paper as opposed to the cheaper paper on the West Coast.”
