Market Close: Munis Extend Firmer Tone Into 11 Sessions

The tax-exempt market extended its flat to stronger trading streak into 11 consecutive sessions Monday.

While the day started out as a typically slow Monday, activity picked up as the week’s largest deals priced for retail. The secondary continued to lag as traders said there was little selling pressure.

“There are a couple deals pricing for retail, but there is nothing in the secondary,” a Chicago trader said. “I ask brokers 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,” he said, referring to the Pennsylvania Economic Development Financing Authority deal.

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.”

Other traders said there was some buying and selling in the morning, but trades were mostly flat.

“Munis aren’t doing much,” a New York trader said. “There is some buying and selling but it’s not rallying or going down.”

In the primary market, the Pennsylvania Economic Development Financing Authority issued $2.5 billion of tax-exempt bonds for retail 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 priced $1.4 billion of unemployment compensation bonds. Yields ranged from 0.34% with a 3% coupon and 0.38% with a 4% coupon 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.

RBC Capital Markets priced for retail $368.7 million of Dormitory Authority of the State of New York districts revenue bonds financing program revenue bonds.

Bonds in the first series of $171.5 million are rated A-plus by Standard & Poor’s and Fitch. Bonds that were insured by Assured Guaranty Municipal Corp. are rated AA-minus by Standard & Poor’s. Yields ranged from 0.62% with a 3% coupon and 0.65% with a 4% coupon in a split 2014 maturity to 3.18% with a 3.15% coupon in 2030. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

The second series of $78.8 million is rated AA-plus by Standard & Poor’s and A-plus by Fitch. Yields ranged from 0.52% with a 5% coupon and 0.55% with a 3% coupon in a split 2014 maturity to 2.83% with a 5% coupon in 2030. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

The third series of $76.5 million is rated Aa3 by Moody’s and A-plus by Fitch. Yields ranged from 0.57% with a 3% coupon and 0.60% with a 5% coupon in a split 2014 maturity to 3.25% priced at par in 2031. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

The final three series of $13.1, $22.4 million, and $6.4 million, were not offered for retail.

In the secondary market, trades compiled by data provider Markit showed mostly strengthening. Yields on New Jersey Economic Development Authority 5s of 2035 plunged four basis points to 3.37%. Yields on Columbus, Ohio, 5s of 2019 and Florida Municipal Power Agency 5s of 2026 dropped two basis points each to 1.04% and 2.82%, respectively.

On Monday, the 10-year Municipal Market Data yield and the 30-year yield finished steady at 1.70% and 2.85%, respectively. The two-year closed flat for the fifth session at 0.30%.

Treasuries ended 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 to 2.82%. The two-year yield increased one basis point to 0.24%.

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