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Market Close: Muni Yields Remain Stable as Large Deals Arrive

The week’s largest issues arrived fast and furious Tuesday.

And as they did, investors snatched them quickly, lending the municipal market a solid mien as the year end approached. Throughout the bond grab, muni yields held their levels just north of historic lows.

The day resembled many from the recent past, a trader in Los Angeles said. Money continues to flow into the market and the struggle to find much in the way of retail-structured paper persists, he said.

From what we’ve seen [in the primary Tuesday], it was a pretty good day, a pretty good reception,” he said. “I don’t know of anything that’s run into problems, or into resistance.”

Market participants flooded the secondary with retail-type bid-wanteds, the trader added. But there appeared to be little interest.

“I’m not getting hit on a whole lot,” he said “But things that were getting one to three bids a couple of months ago are now getting three to five bids, and sometimes more.”

Since the election, the market has been bracing itself for higher taxes, the trader said. This has fed the already intense demand for munis, despite the fact that their tax exemption status might change during the negotiations currently underway in Washington to avoid the “fiscal cliff.”

For the week thus far, the market appeared healthy, a trader in New York said. “We’re morphing into year end with it being a real new-issue focus market,” he said. “Rates in general are fine ... The technicals in our market are probably OK. There’s an awful lot of money around. The game plan for customers is: watch the new-issue market materialize from year end and participate from that front.”

The muni market this week expects the calendar to weigh in at $8.36 billion. A revised $6.75 billion reached the market last week, according to Thomson Reuters.

As expected, investors fed at the new-issue trough and largely ignored the secondary, traders said. Many deals arrived with lowered yields in repricing.

Barclays led the way with two New Jersey Transportation Trust Fund Authority deals that totaled more than $1.2 billion, with the biggest, $920.7 million of authority 2012 Series AA program bonds. Both deals were rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings.

Yields ranged from 0.37% with a 4.00% coupon in 2014 to 3.07% with a 5.00% coupon and 3.34% with a 3.25% coupon in a split maturity in 2038. Yields fell from between three and 11 basis points in repricing.

Retail investors had priority on bids that mature in 2014, 2016, 2017, 2020 and 2022. The bonds are callable at par in 2022.

Barclays priced for the authority $326.3 million of Series A transportation system bonds. The deal was structured as a term bond scheduled to mature in 2042, at a yield of 3.13% with a 5.00% coupon.

Institutional investors got their shot at $819.8 million of Texas Transportation Commission state highway improvement general obligation bonds. Wells Fargo Securities held a retail order period for the deal Monday.

The bonds are rated Aaa by Moody’s, AA-plus by Standard & Poor’s and AAA by Fitch Ratings. The bonds are callable at par in 2022.

Yields ranged from 0.91% with a 5.00% coupon in 2019 to 2.62% with a 5.00% coupon in 2042. The deal arrived with higher yields than those set for the retail order period, but with yields up to five basis points lower in repricing.

The commission also auctioned $99.7 million of Texas Transportation Commission general obligation bonds. Yields ranged from 0.30% at par in 2014 to 1.25% at par in 2019.

Raymond James | Morgan Keegan priced $442.4 million New York City Municipal Water Finance Authority water and sewer second general resolution revenue bonds.

The bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

The deal was priced to yield 2.91% with a 5.00% coupon and 3.13% with a 4.00% coupon in multiple maturities in 2047.

Citi priced $377.6 million of Austin, Texas, electric utility system revenue refunding bonds in both taxable and tax-exempt series for Travis, Hays, and Williamson counties. The bonds are rated A1 by Moody’s and AA-minus Standard & Poor’s and Fitch.

Yields for the taxable series, $107.7 million, ranged from 0.67% priced at par in 2015 to 3.16% priced at par in 2027. They were priced to yield between 30 and 155 basis points over comparable Treasuries.

Yields for the tax-exempt version, $269.9 million, ranged from 0.62% with a 3.00% coupon in 2016 to 2.86% with a 5.00% coupon in 2040. The bonds are callable at par in 2022.

The secondary took a noticeable back seat on the day, the New York trader said.

“When you get to large, bellwether deals, it takes a lot of the focus off the secondary because there’s better structure and better size to buy new issue,” he said. “That’s where everyone gravitates.”

Tax-exempt yields were steady throughout Tuesday’s session, according to a market read. Muni yields closed out the day flat.

The 10-year yield held at 1.48%, one basis point above the record low it set Wednesday and held for two more days, according to the Municipal Market Data scale read.

The 30-year yield ended unchanged at 2.48%, dangling above its record low. The two-year steadied at 0.30% for the 47th consecutive trading session.

Treasury yields fell across the curve on the day. The benchmark 10-year yield slipped two basis points to 1.61%.

The two-year yield also ticked down two basis points to 0.25%. Not to be outdone, the 30-year yield fell two basis points to 2.78%, as well.

Muni ratios to Treasuries remain rich at the intermediate and long sections of the yield curve, MMD numbers show. Even with Treasuries outperformance Tuesday, the 10-year still sits at just under 92%.

The 30-year rose a bit on the day to 89%. The two-year, though, remained relatively cheap compared with Treasuries at 120%.

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