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Market Close: Fixed Income Assets Rally on Election, Fiscal Cliff

The tax-exempt market rallied big Wednesday as traders digested news of the election. Munis followed Treasuries higher and global stocks plummeted.

While election uncertainty has been resolved, traders are now worried about the fiscal cliff and problems in Europe. The risk-off trade Wednesday pushed fixed income assets higher.

“Munis are following Treasuries and you have a few different things going on,” a Chicago trader said. “Tax rates are going higher so that provides huge support for munis and spreads will tighten. Higher income earners in California are being taxed more so California GOs are in big today.”

The Chicago trader added he is also keeping his eye on the taxable market and what happens during the sequestration at the end of the year. “There is still a lot of uncertainty about the taxable market, but it’s not slowing down munis one bit today.”

Other traders agree munis had a big day Wednesday. “In munis, people are buying everything,” a New York trader said.

“Market players have been waiting until the election to get some direction from the market,” wrote Dan Toboja at Ziegler Capital Markets. “Now that President Obama has won a second term, we'll see how eager to transact people are. With only about one million votes total separating both candidates it seems unlikely either party will be able to get much accomplished.”

Still, a rally in the Treasury market pulled munis higher. “With an early rally in the Treasury market this morning any pull-through to munis will at least be welcomed conviction in our market.”

In the primary market, Goldman, Sachs & Co. priced for retail $775 million of District of Columbia income tax secured revenue bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s.

Yields on the first series, $750 million of income tax secured revenue bonds, ranged from 0.31% with 2% and 3% coupons in a split 2014 maturity to 3.26% with a 4% coupon in 2037. Credits maturing in 2013 were offered via sealed bid. Bonds maturing between 2024 and 2026, between 2028 and 2031, and between 2033 and 2036 were not offered for retail. The bonds are callable at par in 2022.

Yields on the second series, $25 million of income tax secured revenue refunding bonds, ranged from 0.31% with a 2% coupon in 2014 to 3.26% with a 4% coupons in 2037. Credits maturing in 2013 were offered via sealed bid. Bonds maturing between 2024 and 2026, and between 2028 and 2031 were not offered for retail. The bonds are callable at par in 2022.

Siebert Brandford Shank & Co priced for retail $461.4 million of New York’s Metropolitan Transportation Authority bonds, rated A2 by Moody’s and A by Standard & Poor’s and Fitch Ratings.

Yields on the first series, $350 million of transportation revenue bonds, ranged from 0.50% with a 4% coupon in 2014 to 3.51% with a 5% coupon in 2042. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

Yields on the second series, $111.4 million of transportation revenue bonds, ranged from 0.92% with a 5% coupons in 2016 to 2.58% with a 5% coupon in 2023. The bonds are callable at par in 2022.

In the competitive market Wednesday, New York’s Oyster Bay auctioned $113 million of bond anticipation notes.

Bank of America Merrill Lynch won the bid for the first series of $112 million. The bonds yielded 0.63% with a 2% coupon.

Flushing Commercial won the bid for the second series of $1 million. The bonds yielded 0.40% with a 4% coupon.

While many market participants were concerned about how east coast deals would price after Hurricane Sandy and the uncertainty of the election this week, a spokesman for New York’s Metropolitan Transportation Authority said the $128.6 million Triborough Bridge and Tunnel Authority deal priced earlier this week was received well despite the aftermath of the Hurricane.

“Triborough Bridge and Tunnel Authority received strong support from both retail and institutional investors one week after superstorm Sandy hit,” the spokesman said. “TBTA received $406 million of priority orders inclusive of $153 million in orders from retail investors. Demand was strong, with bonds in every maturity oversubscribed for. TBTA achieved significantly tighter spreads in certain maturities in comparison to other transactions priced this year."

On Wednesday, the Municipal Market Data scale was much stronger. Yields inside four years were flat while the five- to seven-year yields fell as much as six basis points. Yields outside eight years dropped as much as five to eight basis points.

On Tuesday, the 10-year yield fell one basis point to 1.71%. The 30-year yield was steady at 2.81% while the two-year yield was flat at 0.30% for the 29th consecutive trading session.

Treasuries were much stronger as stocks plummeted. The benchmark 10-year yield plunged 10 basis points to 1.62% while the 30-year yield dropped eight basis points to 2.82%. The two-year yield fell two basis points to 0.26%.

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