Market Post: Focus on Primary as New Deals Priced Cheap

The tax-exempt market traded firmer Tuesday as market participants noted there was a much better tone in the market than Monday or last Friday.

"There is definitely a better tone today," a New Jersey trader said. "The focus is on the primary but the secondary is holding in too."

Overall, the trader said the muni bond market is about two to three basis points stronger.

In terms of new deals coming to market, the New York City general obligation bonds are priced cheap, this trader said. "And all of it was well received. NYC was cheap from retail and really attractive. So it got high demand. That seems to be the driving force is buying more yield."

In the primary market, the Pennsylvania Economic Development Financing Authority issued $2.5 billion of tax-exempt bonds for institutional investors in two pricings, rated Aaa by Moody's Investors Service, and AA-plus by Standard & Poor's and Fitch Ratings.

Institutional pricing information on the first series of $1.4 billion of unemployment compensation bonds priced by Citi was not available by press time. In retail pricing Monday, 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.

In the institutional order period Tuesday for $1.1 billion of unemployment compensation revenue bonds priced by Bank of America Merrill Lynch, yields ranged from 1.42% and 1.47% with 5% coupons in a split 2020 maturity to 0.97%, 0.80%, and 0.70% with 5% coupons in a split 2023 maturity. 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. Yields were lowered 15 basis points from retail pricing on bonds maturing in 2021 and 2023.

JPMorgan priced for institutions $1 billion of City of New York general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody's and AA by Standard & Poor's and Fitch and the deal was upped in size from the expected $825 million.

In institutional pricing, yields on the first series, $525 million, ranged from 0.56% with a 5% coupon in 2015 to 3.45% with a 3.375% coupon in 2035. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022. Yields were increased as much as five basis points from retail pricing.

Yields on the second series, $359.5 million, ranged from 0.56% with 3% and 5% coupons in a split 2015 maturity to 3.24% 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 were increased as much as seven basis points except for the 2032 maturity which was lowered one basis point from retail pricing.

Yields on the third series, $115.5 million, ranged from 0.56% with 2% and 4% coupons in 2015 to 3.29% 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. Yields were increased as much as seven basis points except for the 2020, 2032, and 2033 maturities which were lowered one and two basis points.

RBC Capital Markets priced for institutions $368.7 million of Dormitory Authority of the State of New York districts revenue bonds financing program revenue bonds, following a retail order period Monday. Institutional pricing was not available by press time.

In retail pricing Monday, 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. were 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 competitive market, the University of Alabama Board of Trustees auctioned $280.1 million of revenue bonds in two pricings, rated Aa2 by Moody's and AA-minus by Standard & Poor's.

Wells Fargo Securities won the bid for the first pricing of $259 million. Fifth Third Securities won the bid for the second pricing of $21.1 million. Pricing information was not yet available.

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%.

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 continued to trade mostly flat. The two-year and 30-year yields were steady at 0.24% and 2.82%, respectively. The benchmark 10-year yield rose one basis point to 1.63%.

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