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Market Post: Primary Received Well, Munis Trade Higher in Secondary

The tax-exempt market continued to post gains Thursday as the majority of the deals had already been priced and bonds were subsequently trading up in the secondary.

"The continued up bid-sides persists and demand remains solid," wrote Dan Toboja at Ziegler Capital Markets. "New issues were oversubscribed and deals were being bumped."

He added he has noticed a spread differential between retail and institutional coupon structured bonds. "Deals have historically focused on the institutional side and were little concerned about bifuricating maturities. Deals over the last several months are being aggressively marketed toward retail buyers. Bonds with lower coupons and dollar prices are being widely purchased by dealers and trading vehicles with the intention of putting bonds back into retail systems."

He added, "As long as the market remains stable, especially on the long end with the muni curve flat on a historical basis, retail will continue to support the market. If retail begins to pull away from munis, whether due to headline risk, credit risk, inflation, equity strength, stability in Europe, or any reason the 'correction' that many participants are expecting may be quick."

In the primary market, JPMorgan priced $813.3 million of Texas Transportation Commission Central Texas Turnpike System bonds, rated Baa1 by Moody's Investors Service, A-minus by Standard & Poor's, and BBB-plus by Fitch Ratings.

The first series, $588.2 million of first tier revenue refunding bonds, were priced at par to yield 4% in 2038 and 3.63% with a 5% coupon in 2041. The bonds are callable at par in 2022.

The second series, $225 million of first tier revenue put bonds, were priced at par to yield 1.25% in 2042.

Goldman, Sachs & Co. priced for institutions $842 million of Hawaii 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.

Yields on the first series, $444 million, ranged from 0.75% with 2%, 3% and 4% coupons in a split 2017 maturity to 2.58% with a 4% coupon in 2032. The bonds are callable at par in 2022.

Yields on the second series, $398 million, ranged from 0.75% with a 5% coupon in 2017 to 1.91% with a 5% coupon in 2024. The bonds are callable at par in 2022. Yields were lowered three basis points from preliminary pricing.

Morgan Stanley priced $229.7 million of Pennsylvania Housing Finance Agency single family mortgage revenue bonds, rated Aa2 by Moody's and AA-plus by Standard & Poor's.

The first series, $123.3 million of bonds subject to the alternative minimum tax, were priced at par to yield 0.40% and 0.48% in a split 2013 maturity to 3.35% in 2026. The bonds are callable at par in 2021.

The second series of $6.4 million was priced at par v 0.90% in 2013 and 1.05% in 2016.

The third series of $100 million was priced at par to yield 305% in 2027 to 3.70% in 2042. The bonds are callable at par in 2021.

In the competitive market, the New York City Transitional Finance Authority auctioned $889.9 million of revenue bonds.

Bank of America Merrill Lynch won the bid for $559.9 million. Wells Fargo won the bid for $130 million. RBC Capital Markets won the bid for $100 million. Citi won the bid for $100 million. Pricing details were not yet available.

On Wednesday, the Municipal Market Data scale posted gains for the seventh consecutive session and record low yields were set yet again. The 10-year yield dropped one basis point to 1.54%, setting a record low as recorded by MMD. The 1.54% record beat the 1.55% set Tuesday and the 1.57% set last Friday.

The 30-year MMD yield plunged four basis points to 2.60%, also setting a record low. The 2.60% beat the previous record of 2.64% set Tuesday and the 2.66% set Friday.

The two-year finished steady at 0.30% for the 34th consecutive trading session.

After weakening in the morning, Treasuries were stronger Thursday afternoon. The two-year yield and 30-year yield fell one basis point each to 0.24% and 2.71%, respectively. The benchmark 10-year yield was steady at 1.58%.

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