Market Post: Munis Flat Ahead of Pricing of Biggest Deals

The tax-exempt market traded steady ahead of one of the biggest days of pricing in the primary market.

Traders said most of the biggest deals are expected to price for institutions today, and so focus should be on the primary and not the secondary. “It should be a busy day but not for us,” an institutional trader focused on the secondary market said.

He added trading is mostly flat Tuesday morning.

In the primary market, the Pennsylvania Economic Development Financing Authority should issue $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.

In the retail order period Monday, Citi priced $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.

On Monday, Bank of America Merrill Lynch also priced for retail $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 is expected to price for institutions $825 million 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.

In the retail order period Monday, 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 is expected to price 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.

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 will auction $280.1 million of revenue bonds in two pricings, rated Aa2 by Moody’s and AA-minus by Standard & Poor’s. The first pricing will consist of $259 million followed by 21.1 million.

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 were 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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