The tax-exempt market ended mostly steady Thursday as traders said the market was starting to quiet down by afternoon with the majority of the new issue pricing finished for the week.
Traders said that while it was weaker in earlier trading sessions, the market has a steady tone to it.
“It’s pretty flat really,” a San Francisco trader said. “It seems surprisingly quiet given that Treasuries have begun to sell off here more as the day progresses but I’m not sure we have followed here in munis.”
Still, there were hints of weakness and some traders were looking to sell. “Sales guys are saying that if you have any interest near our offerings, let us know,” the trader said. “So I think there is an underlying feeling of softness but a reluctance to just cut offerings. But generally it’s flat to slightly weaker.”
Thursday morning, the market even appeared stronger at some points with traders saying activity was up. “It’s a little bit stronger, but nothing special,” a New York trader said. He added activity was busier — similar to Wednesday’s trading session — but still spotty.
The biggest deal of the week, the $10 billion California revenue anticipation notes, priced for institutions Thursday and the San Francisco trader said it went well.
“It came in on the lower end of yields, but it didn’t do as well in retail as the one that came last fall,” he said. “However, I don’t think that was a great surprise. I’m sure they feel they have a lot of demand for it on top of whatever did or did not get done in retail to go out at that lower end.”
JPMorgan and Wells Fargo Securities priced $10 billion of the California Rans following a two-day retail order period. The notes are rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s and F-1 by Fitch Ratings.
Bonds in the first series of $2.5 billion yielded 0.33% with a 2.5% coupon maturing in May 30, 2013.
Bonds in the second series of $7.5 billion yielded 0.43 with a 2.5% coupon maturing in June 20, 2013.
Yields were initially quoted at 0.30% to 0.40% in the first series and 0.40% to 0.55% for the second series. A spokesman for the California state treasurer’s office said strong demand from institutional investors kept the final yields for both maturities at the low end of the preliminary ranges quoted for retail.
Retail investors placed about $3.235 billion of orders in the two-day retail pricing, according to the spokesman. The retail orders placed made up 40.4% of the $8 billion of Rans that were offered to retail and 32.3% of the total $10 billion offering.
“We’re very satisfied with the retail results,” the spokesman said.
Regarding the institutional pricing, California Treasurer Bill Lockyer said the state saw outstanding results. “Ten billion dollars is always a heavy lift, regardless of market conditions, and we got it done at an excellent price for taxpayers,” Lockyer said. “Their borrowing costs are very close to what they paid on last year’s Rans, and this deal was twice the size. The governor and legislature in the last couple of years have significantly improved California’s fiscal condition, and this result reflects increased investor confidence in the state’s financial management and health.”
Indeed, last year California sold $5.4 billion of Rans, which yielded 0.38% for a May maturity and 0.40% for a June maturity.
In the rest of the primary market, Ramirez & Co. priced $290.5 million of Dallas and Fort Worth airport joint revenue refunding bonds, subject to the alternative minimum tax. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch. Pricing details were not available by press time.
Bank of America Merrill Lynch priced $125.1 million of Michigan Finance Authority local government loan program revenue bonds, rated A3 by Moody’s and A-plus by Standard & Poor’s.
Yields ranged from 1.26% with a 3% coupon in 2014 to 4.12% with a 5% coupon in 2032. The bonds are callable at par in 2019 except for credits maturing in 2030 and 2031 which are callable at par in 2022.
On Thursday, the 30-year triple-A Municipal Market Data yield rose one basis point to 3.01%. The 10-year was steady at 1.87% while the two-year closed at 0.29% for the 16th straight session.
Since yields hit record lows at the end of July, the 10-year triple-A muni yield has jumped 27 basis points from its low of 1.60% while the 30-year muni yield has jumped 22 basis points from its low of 2.79%.
After strengthening in the morning, Treasuries reversed course and ended weaker. The benchmark 10-year yield jumped three basis points to 1.84% while the 30-year yield spiked up five basis points to 2.96%. The two-year was steady at 0.30%.
In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Alamo, Texas, Community College District 5s of 2034 jumped five basis points to 2.97% while Jacksonville Electric Authority 5s of 2034 increased four basis points to 3.33%.
Yields on California’s Golden State Tobacco Securitization Corp. 5s of 2035 and Los Angeles Wastewater System 5s of 2022 rose two basis points each to 3.90% and 2.15%, respectively. Yields on New York City Transitional Finance Authority 5s of 2019 increase two basis points to 1.80% while Dormitory Authority of the State of New York 5s of 2039 rose one basis point to 2.97%.
