Market Post: Secondary Stalls As Biggest Deals Price For Retail

The tax-exempt market saw increased activity in the primary market with the week’s largest deals pricing for retail Monday. Activity in the secondary market continued to lag as traders said there was no selling pressure.

 

“There are a couple deals pricing for retail, but there is nothing in the secondary,” a Chicago trader said. “I ask brokers to see if they like anything and they say no. It seems too tight. It’s a typical Monday and usually dead.”

 

He added that there is no selling pressure because while it seems like a large week of supply in the primary, $2.5 billion of the $7.5 billion is from one issuer. “That deal is coming on the short end, so there might be pressure in the five-year range but I doubt it. I’m pretty market neutral,” he said, referring to the Pennsylvania Economic Development Financing Authority.

 

The market also doesn’t have selling pressure because there is nowhere else to invest money, the trader said. “Why lose coupons and book yields? New issues print 1% to 3% coupons and if you have 5s on the shelf you can’t replace them. There is no reason to sell and take a profit.”

 

In the primary market, the Pennsylvania Economic Development Financing Authority issued for retail $2.5 billion of tax-exempt bonds in two pricings, rated Aaa by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings. Institutional pricing is expected Tuesday.

 

Citi price $1.4 billion of unemployment compensation bonds. Yields ranged from 0.34% and 0.38% with 3% and 4% coupons in a split 2014 maturity to 1.19% with a 5% coupon in 2019. Credits maturing in 2013 were offered via sealed bid. Portions of credits maturing between 2014 and 2019 were not offered for retail.

 

Bank of America Merrill Lynch priced $1.1 billion of unemployment compensation revenue bonds. Yields ranged from 1.47% with a 5% coupon in 2020 to 1.05% and 0.95% with 5% coupons in a split 2023 maturing. Portions on bonds maturing between 2020 and 2023 were not offered for retail. Credits maturing in 2020 are callable at par in 2019. Credits maturing in 2021 are callable at par in 2018 and 2019, credits maturing in 2022 are callable at par in 2016 and 2017, and credits maturing in 2023 are callable at par in 2015 and 2016.

 

JPMorgan priced a second retail order period of $825 million of City of New York general obligation bonds, following a retail order period Friday. Institutional pricing is expected Tuesday. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.

 

Yields on the first series, $525 million, ranged from 0.51% with a 5% coupon in 2015 to 3.48% with a 3.5% coupon in 2035. Bonds maturing in 2014 were offered via sealed bid. Bonds maturing between 2024 and 2034 were not offered for retail. The bonds are callable at par in 2022.

 

Yields on the second series, $214.6 million, ranged from 0.51% with a 3% coupon in 2015 to 3.25% with a 3.125% coupon in 2032. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022.

 

Yields on the third series, $85.4 million, ranged from 0.51% with a 2% coupon in 2015 to 3.32% with a 3.25% coupon in 2033. Bonds maturing in 2013 and 2014 were offered via sealed bid. The bonds are callable at par in 2022.

 

On Friday, the 10-year Municipal Market Data yield fell one basis point to 1.71% while the 30-year yield dropped three basis points to 2.85%. The two-year closed flat for the fourth session at 0.30%.

 

Since the most recent rally streak began Sept. 17, the 10-year MMD yield has plunged 23 basis points from 1.93% while the 30-year yield has plummeted 21 basis points from the 3.06% where it traded on Sept. 17.

 

The 10-year yield is now at its lowest since Aug. 2 when it touched 1.66%. It hovers only six basis points above its record low of 1.60% set July 26.

 

The 30-year yield is at its lowest since Aug. 2 when it yielded 2.84%, just five basis points above its 2.79% record low yield hit July 25.

 

Treasuries were stronger on the long end. The benchmark 10-year yield dropped two basis points to 1.62% while the 30-year yield fell one basis point each to 2.82%. The two-year yield increased one basis point to 0.24%.

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