Market Post: Primary Still Directing Muni Yields

The municipal market continues to project a positive tone as investors flush with cash respond well to new issuance.

Despite the demand, though, yields continue to hover as the week's largest deals arrive. But the feeding frenzy in the primary has led to "lackluster" activity in the secondary, a trader in Chicago said.

"The secondary continues to be on life support," he said. "There's not a lot of flow. What focus there is seems to be in the primary market. There might be some blocks trading here and there."

Grinding into the afternoon, traders say yields look a little firmer, particularly in quality names. One market gauge has triple-A yields up to a basis point firmer beyond 24 years on the curve.

The primary market expects supply to total $7.64 billion this week. That compares with a revised $7.44 billion last week.

The number approximates the amount the market has been seeing lately. Industry watchers say the market should absorb the volume with little difficulty.

On the negotiated side Wednesday, Morgan Stanley priced $232.7 million of Wake Forest Baptist Medical Center hospital refunding revenue bonds in two series. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.

Yields in the first series, $119.4 million, arrived at 3.93% with a 4.00% coupon and 3.49% with a 5.00% coupon in a split maturity in 2045. Yields in the second series, $113.4 million, ranged from 0.44% with a 3.00% coupon in 2014 to 3.51% with a 4.00% coupon and 3.21% with a 5.00% coupon in a split maturity in 2033.

Yields were lowered two basis points for credits maturing at the front end of the curve in the second series from the morning's retail order period. The bonds in both series are callable at par in 2022.

Also, Citi repriced $485.1 million of Miami-Dade County subordinate special obligation refunding bonds in two series. The bonds are rated A2 by Moody's and A-plus by Standard & Poor's and Fitch Ratings.

Yields in the first series, $176.2 million, ranged from 0.75% with a 3.00% coupon in 2014 to 3.48% with a 5.00% coupon in 2030. The bonds in this series are callable at par in 2022. Yields fell by as much as seven basis points for debt maturing beyond nine years in repricing.

Yields in the second series, $308.8 million, ranged from 3.48% with a 5.00% coupon in 2030 to 3.84% with a 5.00% coupon, 4.08% with a 4.00% coupon, and 4.00% priced at par in multiple maturities in 2037. The bonds in this series are callable at par in 2022. Yields were lowered by as much as 12 basis points in repricing.

The benchmark 10-year muni yield dropped two basis points to 1.72% Tuesday. The 30-year yield slipped two basis points to 2.84%. The two-year held at 0.30% for the 20th consecutive trading session.

Treasuries yields continued through Wednesday mostly higher. The benchmark 10-year yield has climbed two basis points to 1.78%.

The 30-year yield has also risen two basis points to 2.93%. The two-year yield has held steady at 0.30%.

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