The tax-exempt market ended steady to slightly weaker as traders looked to take profits by selling inventory ahead of the end of the year.
Other market participants noted that while trading was weaker in states that saw a lot of issuance this week, other trades were stronger in states that are more supply-starved.
Overall, traders were focused on buying new deals in the primary while also trying to clear out inventory in the secondary.
One Los Angeles trader noted the market was focused on the primary as the secondary took a backseat. It’s now or never as traders expect supply to drop off significantly as the holidays approach.
“California GOs had a stronger bid today and are up from yesterday,” the Los Angeles trader said. “In California and some west coast states, there is not a lot of supply. Most of the supply is out in Texas, New Jersey, and New York so there is some activity on the West Coast, but it’s slowing down. There’s a weaker tone in certain states with a lot of supply.”
He added the focus is on the primary. “Customer interest has waned in the secondary due to the amount of primary that’s hitting the market. Basically it’s getting hard to focus on spreads. It’s extremely tight in the five- to 10-year range.”
He added Treasuries have a stable tone and munis are following. “It’s strong weakness. And complete apathy and lack of interest in the levels that are out there.”
In the morning trading session, the Street looked to take profits as traders sold inventory left on their books.
“The market is weaker by three to four basis points,” a New York trader said. “Generally the Street has a lot of inventory to bid so they are looking to move bonds at wider spreads. The market is looking to take profits and is just selling.”
The trader added he was bidding on bonds and focusing on the secondary. “The market is still expensive,” he said.
In the primary market, RBC Capital Markets priced $221.9 million of New Mexico Finance Authority state transportation refunding revenue bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s.
Yields ranged from 0.45% with a 3% coupon in 2015 to 2.05% with a 4% coupon in 2026. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
In the competitive market, the Port Authority of New York and New Jersey auctioned $595 million of consolidated revenue bonds in two series, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch Ratings.
Bank of America Merrill Lynch won the bid for $425 million. Yields ranged from 0.215% with a 4% coupon in 2013 to 3.40% with a 3.25% coupon in 2042. The bonds are callable at par in 2022.
Citi won the bid for $170 million. Yields ranged from 0.37% with a 0.4% coupon in 2013 to 2.48% with a 2.5% coupon in 2022.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Houston, Texas, Utility System 4s of 2028 plunged four basis points to 2.36% while Long Beach, Calif., Community College District 5s of 2039 fell three basis points to 2.80%.
Yields on Pennsylvania Higher Educational Facilities Authority 5s of 2019 and District of Columbia 5s of 2033 fell one basis point each to 1.11% and 1.79%, respectively.
Still, other trades were weaker. Yields on Long Island Power Authority 5s of 2026 rose two basis points to 2.50% while Puerto Rico Commonwealth Aqueduct and Sewer Authority 4.9s of 2020 rose one basis point to 4.74%.
On Wednesday, the Municipal Market Data scale ended steady for the second consecutive trading session. The 10-year yield finished flat at 1.48% for the second session, one basis point above the 1.47% record low set Nov. 28. The 30-year yield ended unchanged at 2.48% for the second trading session, dangling above its record low of 2.47% set Nov. 28. The two-year finished flat at 0.30% for the 48th consecutive trading session.
Treasuries were mixed as trades were stronger in the belly of the curve and weaker on the long end of the curve. The benchmark 10-year yield fell one basis point to 1.60% while the 30-year yield increased one basis point to 2.79%. The two-year was steady at 0.25%.
In November, retail trades for under 100 bonds — or $100,000 par value — jumped even as yields declined, according to figures from BondDesk Group.
Typically trading volume falls as yields fall, but BondDesk Group notes this theme reversed in the month of November, and increased sharply from October. “Yields for municipal bonds continued their declining trends in November. At slightly above 2.5%, the median yield for municipal bonds in November set a new 12-month low. Reversing the declining trends over the past few months, average daily trade volume increased 8% from the volume in October.”
But as yields fell, the number of “buy” trades to “sell” trades fell. The buy-to-sell ratio fell below 2% and set a new 12-month low, BondDesk Group said.
And as yields fell, munis became rich compared to Treasuries. The muni-to-Treasury ratio has fallen since the beginning of November, at least on the intermediate and long-end of the curve.
The 10-year muni yield to Treasury yield ratio dropped to 92.5% on Wednesday from 100% on Nov. 1. The 30-year ratio plummeted to 88.9% on Wednesday from 97.2% at the beginning of November.
