The tax-exempt market ended the day mostly unchanged as market participants said August vacations have slowed trading.
The largest deals hit the primary market with mixed reception.
“The market is really boring,” a New York trader said. “It’s a really slow start to the month.”
Munis ended mostly steady Wednesday, according to the Municipal Market Data scale. Yields inside 24 years were flat while yields outside 25 years rose one and two basis points.
On Wednesday, the 10-year yield finished steady at 1.75%. The two-year finished steady at 0.29% for the 10th consecutive session. The 30-year yield rose two basis points to 2.93%.
Treasuries were weaker after a mixed session that saw gains in the morning. The benchmark 10-year yield rose two basis points to 1.65% while the 30-year yield jumped three basis points to 2.75%. The two-year yield increased one basis point to 0.29%.
In the primary market, Bank of America Merrill Lynch priced for institutions $1.1 billion of New York City Transitional Finance Authority future tax-secured bonds and subordinate bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $100 million of subordinate bonds, ranged from 0.53% with 2% and 4% coupons in a split 2015 maturity to 2.55% with 2.5% and 5% coupons in a split 2026 maturity. Credits maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022. Yields were increased four and five basis points on the long end from the second day of retail pricing Tuesday, after already being raised between three and five basis points from the first day of retail pricing Monday.
Yields on the second series, $950 million of future tax-secured subordinate bonds, ranged from 0.58% with a 5% coupon in 2015 to 3% priced at par and 2.94% with a 5% coupon in a split 2032 maturity. Bonds maturing in 2013 and 2014 were offered via sealed bid. The bonds are callable at par in 2022. Yields were increased as much as eight basis points on the long end from the second retail order period Tuesday after being raised between three and five basis points from the first retail order period Monday.
The NYC TFA also came to market with $350 million of future tax-secured taxable subordinate bonds in two separate pricings in the competitive market.
RBC Capital Markets won the bid for $200 million. The bonds were priced at par ranging from a 1.44% coupon in 2017 to a 2.85% coupon in 2024. The bonds were priced 70 basis points to 125 basis points above the comparable Treasury yield.
Barclays Capital won the bid for $150 million. The bonds yielded 3.78% with a 4.10% coupon in 2034.
Barclays priced and repriced $721.6 million of
Yields on the first series, 440.4 million of bonds subject to the alternative minimum tax, ranged from 0.76% with a 5% coupon in 2014 to 4.10% with a 4% coupon in 2032. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022. Yields were lowered as much as 10 basis points from preliminary pricing.
Yields on the second series, $274.7 million of bonds subject to the AMT, ranged from 0.76% with a 4% coupon in 2014 to 3.85% with a 5% coupon in 2032. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022. Yields were lowered as much as 10 basis points from preliminary pricing.
Bonds in the third series, $6.5 million of debt not subject to the AMT, yielded 0.46% with a 3% coupon in 2014 and 0.70% with a 4% coupon in 2015. Yields were lowered 10 and five basis points on each maturity, respectively.
In the secondary market, trades compiled by data provider Markit showed mostly weakening. Yields on Texas 5s of 2035 jumped five basis points to 2.40% while Chicago Public Buildings Commission 5.25s of 2018 increased four basis points to 2.03%.
Yields on Pennsylvania Turnpike Commission 5.511s of 2045 and California Statewide Community Development Authority 5s of 2042 increased three basis points each to 4.40% and 3.84%, respectively.
Most analysts agree that yield is king. In July, safe-haven buying in the Treasury market forced investors to move down the credit scale in both the Treasury and municipal bond market. Anthony Valeri, market strategist LPL Financial, expects that to continue. “We believe the bond market may continue to be range-bound through August, keeping the emphasis on higher yielding segments of the bond market.”
Throughout July, Treasuries returned 1% — a robust return for a one month period, according to Valeri. And those returns were seen in the muni market as well with tax-exempts posting their strongest July returns in 20 years. Municipal bonds returned 1.6% in July while high-yield munis returned 2.3%. Year-to-date, munis have returned 5.2% while high-yield munis have returned a whopping 12.2%, according to Valeri.
