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Market Post: Munis Still Climb as Buying Spree Continues

The tax-exempt market continued to see gains Wednesday as traders looked forward to more primary issuance flooding the market.

"There was buying earlier this morning, but now it's quiet," a New York trader said. He added the market is still stronger after muni yields hit record lows Tuesday.

In the primary market Wednesday, Bank of America Merrill Lynch is expected to price for institutions $792.4 million of Miami-Dade County, Fla., aviation revenue refunding bonds, rated A2 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.

B of A Merrill is expected to price for retail $534.9 million of North Carolina Municipal Power Agency electric revenue bonds, rated A by Standard & Poor's. Institutional pricing is expected Thursday.

B of A Merrill is expected to price for institutions $491.6 million of Lower Colorado River Authority refunding revenue bonds, following a retail order period Tuesday. The bonds are rated A1 by Moody's and A by Standard & Poor's and Fitch.

The first series of $289.5 million was not offered for retail.

Yields on the second series of $202.1 million, ranged from 0.50% with a 3% coupon in 2014 to 3.52% with a 3.50% coupon in 2037. Bonds maturing in 2013 were offered via sealed bid. Credits maturing between 2026 and 2028, in 2031, 2032, and portions of 2037 were not offered for retail. The bonds are callable at par in 2022.

In the competitive market, Virginia College Building Authority is expected to auction $377.5 million of revenue bonds.

The Hartford County Metropolitan District is expected to auction $246.7 million of bonds in two series - $187.8 million and $58.9 million.

The Municipal Market Data scale climbed higher Tuesday following a strong session Monday, setting more record lows. The 10-year MMD yield fell two basis points to 1.49%, a record low. The 1.49% beat the previous record low of 1.50% set Nov. 16.

The 30-year MMD yield dropped three basis points to 2.49%, also setting a record low, beating the previous record of 2.52% set Monday. Before Monday, the record low was 2.54% set Nov. 16.

The two-year finished steady at 0.30% for the 42nd consecutive trading session.

Yields have plunged throughout the month of November. Since the start of the month, the 10-year MMD yield has fallen 23 basis points from where it started at 1.72% while the 30-year yield has fallen 33 basis points from where it started the month at 2.82%.

Treasuries were stronger Wednesday after a slight rally Tuesday. The benchmark 10-year yield fell three basis points to 1.61% while the 30-year yield dropped four basis points to 2.75%. The two-year was steady at 0.27%.

In economic news, sales of new single-family houses dropped 0.3% to 368,000 in October, following a sharply downwardly revised September rate of 369,000.

The October figure failed to meet economists' expectations of 385,000.

"A disappointing new home sales report that does not corroborate the solid gains in homebuilder optimism shown in the NAHB's housing market survey nor the increase in single-family housing starts," wrote economists at RDQ Economics. "However, the new home sales data are volatile and revision prone and we are not changing our view that a modest recovery in home sales, construction activity, and prices is well underway. The home sales miss cannot be blamed on Hurricane Sandy as the Commerce Department said it had a minimal impact on these data. Despite the somewhat disappointing new home sales data, new housing inventory remains low both in absolute terms and in relation to sales."

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