The tax-exempt market ended mostly steady Thursday after a big rally earlier in the week that traders said was driven by cash on the sidelines being put to work and creating more demand than supply.
Traders said the voracious appetite for munis is not likely to change anytime soon.
“The market has been crazy,” a New Jersey trader said. “I’ve never seen anything like this. It’s just nonstop every day. Especially in the yield grab and that’s been continuous for the past month.”
He noted that new deals have gone extremely well and there has been good follow-through in the secondary.
“Any new issue that’s out of the ordinary is getting bought,” the trader added. He said he put in for $15 million of $110 million of low investment-grade New Jersey Health Care Facilities Financing Authority bonds and received under $1 million. “It was pretty aggressively priced and came in rich and still it was 15 times oversubscribed.”
Others agreed the market was on fire this week. “Bids continue to drive yields lower on munis despite a virtual consensus that over the long term our current levels are unsustainable,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “This week has a good amount of new-issue supply, but from the deals we’ve seen there is still plenty of cash, and the market has held steady or tightened with the supply.”
He added: “There is little direction expected from Washington with the fiscal cliff and how it relates to munis, so any news that a solution is being reached may shock the fixed-income markets.”
And while the week was very busy, the market started to quiet down by Thursday as traders took a breather. “It’s kind of slow,” a New York trader said. “Buying has slowed down a bit.”
In the primary market Thursday, Bank of America Merrill Lynch priced $779.2 million of Miami-Dade County aviation revenue refunding bonds, rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $672.1 million of bonds subject to the alternative minimum tax, ranged from 0.84% with a 4% coupon in 2014 to 3.34% with a 5% coupon in 2032. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
Yields on the second series of $107.1 million ranged from 0.51% with a 3% coupon in 2014 to 3.10% with a 3% coupon in 2029. Credits maturing in 2013 were offered via sealed bid .The bonds are callable at par in 2022.
B of A Merrill priced $563.9 million of North Carolina Municipal Power Agency Number 1 Catawba electric revenue bonds, rated A2 by Moody’s and A by Standard & Poor’s and Fitch.
Yields on the first series, $462.6 million of refunding bonds, ranged from 0.55% with 2%, 3% and 5% coupons in a split 2015 maturity to 1.40% with 3%, 4% and 5% coupons in a split 2020 maturity.
Yields on the second series of $101.3 million ranged from 1.65% with a 5% coupon in 2021 to 3.05% with a 3% coupon in 2032. The bonds are callable at par in 2022.
In the competitive market, Baltimore County, Md., auctioned $364.2 million of consolidated public improvement bonds, rated triple-A. The four pricings consist of $193 million, $93.1 million, $60 million and $18.1 million.
Citi won the bid for $193 million. Yields ranged from 0.37% with a 5% coupon in 2015 to 2.55% with a 3% coupon in 2032. Credits maturing in 2013 and 2014 were offered via sealed bid. The bonds are callable at par in 2022.
B of A Merrill won the bid for $93.1 million. Yields ranged from 0.19% with a 5% coupon in 2013 to 1.75% with a 2% coupon in 2024. The bonds are callable at par in 2022.
Wells Fargo Securities won the bid for $60 million. Yields ranged from 0.20% with a 5% coupon in 2013 to 2.95% with a 3% coupon in 2042. The bonds are callable at par in 2022.
JPMorgan won the bid for $18.1 million. Yields ranged from 0.18% with a 4% coupon in 2013 to 2.698% with a 2.5% coupon in 2032. The bonds are callable at par in 2022.
Wells Fargo Securities won the bid for $230 million of Virginia Housing Development Authority bonds, rated triple-A.
All bonds were priced at par with yields ranging from 0.60% and 0.65% in a split 2014 maturity to 3.25% in 2039. Bonds maturing between 2014 and 2017 are subject to the alternative minimum tax. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed strengthening. Yields on Massachusetts Development Finance Agency 5s of 2040 dropped three basis points to 2.17%.
Yields on California 4s of 2028 and Eagle Mountain-Saginaw, Texas, Independent School District 4s of 2042 fell two basis points each to 2.63% and 2.96%, respectively. Yields on University of Texas 5s of 2022 dropped one basis point to 1.55%.
The Municipal Market Data scale ended Thursday firmly in record territory. The 10-year yield finished flat at 2.47%, its record low set Wednesday. The 30-year yield also finished steady at 2.57%, at its record low. The two-year finished steady at 0.30% for the 44th consecutive trading session.
Treasuries ended the day flat. The benchmark 10-year yield and 30-year yield finished steady at 1.62% and 2.79%, respectively.
The two-year was flat at 0.27%.