Market Post: Buyers Turn to Secondary

The tax-exempt market turned its attention to the secondary market Thursday as most of the week’s largest deals were priced in the primary Wednesday. Traders said the secondary was much more active as buyers looked to find better deals in the secondary.

“There are better buyers,” a New York trader said. “Buyers are upping prices a little bit.”

The Municipal Market Data scale was not updated by press time. On Wednesday, the 10-year yield ended flat at 1.86% for the ninth trading session while the two-year ended steady at 0.32% for the 19th straight session. The 30-year yield finished flat at 3.16% for the fourth session.

Treasuries were much stronger Thursday morning. The benchmark 10-year yield dropped five basis points to 1.58% while the 30-year yield fell four basis points to 2.66%. The two-year was steady at 0.31%.

In the primary market, Bank of America Merrill Lynch is expected to price for institutions $1 billion of New York’s Metropolitan Transportation Authority bonds, rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings.

In retail pricing Wednesday, yields ranged from 1.03% with 3% and 4% coupons in a split 2015 maturity to 4.07% with a 4% coupon in 2032. Bonds maturing between 2024 and 2029 were not offered for retail. The bonds are callable at par in 2022.

Keybanc Capital Markets is expected to price $146.2 million of Southeastern Ohio Port Authority hospital facilities revenue refunding and improvement bonds for the Memorial Health System Obligated Group.

In the competitive market, North Texas Municipal Water District is expected to auction $358.8 million of revenue bonds, rated Aa2 by Moody’s.

Colorado is expected to auction $125 million of short-term notes, rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s.

In economic news, real gross domestic product grew at an annual rate of 1.9% in the first quarter, unchanged from the preliminary estimate earlier this month. The 1.9% growth was less than the 3.0% increase in the fourth quarter 2011, but right in line with economist expectations.

“From the perspective of the GDP expenditure data, the first quarter looked fairly typical relative to the last year with real growth at almost 2% and nominal growth at almost 4%,” wrote economists at RDQ Economics. “Government statisticians found a little less inventory building and consumer spending and a little more nonresidential construction and a smaller trade gap. However from the income side, the first quarter looked a bit stronger with the implicit income estimate of real GDP growth being revised up to 3.1% from 2.7% despite a downward revision to corporate profits.”

They added, “The strong employment growth seen in the first quarter would tend to suggest that the income estimate of GDP growth painted the more accurate growth story although we would expect this growth measure to slow in the second quarter even as we look for a slight pickup in the growth rate of the official expenditure estimate from its tepid 1.9% pace seen in the first quarter.”

In other economic news, seasonally adjusted initial jobless claims fell 6,000 to 386,000 for the week ending June 23 while continuing claims fell to 3.296 million for previous week from a revised 3.311 million.

The initial claims were just higher than the expected 385,000 projected by economists. Continuing claims were right in line with expectations.

“The underlying level of claims measured by the four-week average has moved up by around 16,000 from late May to late June signaling a slightly faster rate of layoffs,” RDQ economists wrote. “There is no evidence here, therefore, of a pickup in the rate of job creation from the slowdown seen from February to May. In early July, the level of claims is often distorted by factory shutdowns for retooling. It appears that there are plans for fewer shutdowns in the industry this year, which could lead to a drop in initial claims in early July that would have little to do with the underlying state of the labor market.”

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