The muni market was both “weird” and “apathetic” Wednesday, according to traders, who said most participants spent the day watching despite new deals that appeared to be well-received.
“The market is very wishy-washy,” a New Jersey trader said. “One minute it’s clocked, the other minute it’s back up. We are flat to up a little bit on the long end, intermediates are down a little, and the short end is flat to down. So it was a weird day.”
“Not a lot of product is coming and inventory isn’t that heavy, so there is no pressure to sell,” he added. For the people looking to buy, “names have been out there too long and are too stale.”
While Treasuries were down during most of the day due to reports that Greece might have found a resolution to its fiscal crisis, munis weren’t following.
“Munis aren’t scared and there is no pressure to sell because the calendar is light and there is no reason to hit the bid,” the trader said. “Apathy is what is happening.”
A trader in New York also said apathy was the theme for Wednesday.
“We are definitely seeing interest in the market, but there just isn’t a lot to do here,” he said. “So we are drifting a little lower on apathy.”
While the tax-exempt market has weakened for four consecutive trading sessions, a turnaround could be on the horizon.
“Other than last week, the strongest days of the week have been Wednesday going into Thursday, so I wouldn’t be surprised if the market is better going into Thursday,” the New York trader said.
A second New York trader sounded indifferent as well. “The market still feels weird,” he said. “Retail is buying a little, but dealers aren’t really moving either way.”
Munis were weaker Wednesday, according to the Municipal Market Data scale. Yields inside seven years were flat while eight- to 26-year yields rose one basis point. Yields between 27 and 28 years jumped two basis points while yields outside 29 years rose three basis points.
On Wednesday, the two-year held steady at 0.29%, its record low as recorded by MMD on Tuesday. The previous record of 0.30% was set Aug. 10. The 10-year yield rose one basis point to 1.85% while the 30-year yield jumped three basis points to 3.25%.
Since munis started weakening last Friday, the 10-year yield has jumped 19 basis points and the 30-year yield has risen 11 basis points.
After losing Wednesday morning, Treasuries pared those losses in the afternoon and rallied back up to Tuesday’s levels. The two-year yield was steady at 0.26% while the benchmark 10-year yield was flat at 1.98%. The 30-year yield fell one basis point to 3.14%.
In the primary market Wednesday, the competitive calendar was full of activity. With almost $18 billion of bonds maturing in February, the market should be able to absorb supply this week.
Wells Fargo won the bid for $285.8 million of Florida Board of Education public education capital outlay refunding bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.25% with a 5% coupon in 2013 to 2.30% with a 3% coupon in 2023.
JPMorgan won the bid for $131.9 million of Texas’ Tarrant Regional Water District transmission facilities contract revenue bonds.
This deal comes after the district issued $160 million in the negotiated market Monday. The bonds are rated Aa1 by Moody’s.
Yields ranged from 0.23% with a 2% coupon in 2013 to 3.95% with a 4% coupon in 2042.
In the negotiated market, Barclays Capital priced and repriced $271.3 million of University of Washington taxable and tax-exempt general revenue and refunding bonds, rated Aaa by Moody’s and AA-plus by S&P.
Yields on the first series, $237.1 million of general revenue and refunding bonds, ranged from 0.22% with a 2% coupon in 2013 to 3.50% with a 5% coupon in 2041.
Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2022.
Credits on the second series, $34.2 million of taxable general revenue and refunding bonds, were priced at 82 basis points above the comparable Treasury yield in 2020 and 65 basis points above the comparable Treasury yield in 2021.
The spread on credits maturing in 2020 was cut five basis points at repricing. Bonds maturing in 2012 were offered via sealed bid.
Morgan Stanley priced $240.6 million of Cleveland Airport System revenue bonds. The credit is rated Baa1 by Moody’s and A-minus by Standard & Poor’s and Fitch.
Maturities insured by Assured Guaranty Municipal Corp. are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Insured yields ranged from 3.64% with a 5% coupon in 2025 to 4.15% with a 5% coupon in 2031. Uninsured yields ranged from 3.79% with a 5% coupon in 2025 to 4.30% with a 5% coupon in 2031. The bonds are callable at par in 2022.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board were mostly weaker.
A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.83%, five basis points higher than where they traded Tuesday.
A dealer sold to a customer Long Island Power Authority 5s of 2038 at 4.09%, four basis points higher than where they traded Tuesday.
A dealer sold to a customer Massachusetts 5.25s of 2030 at 2.30%, two basis points higher than where they traded Monday.
A dealer bought from a customer Tarrant Regional Water District 5s of 2052 at 3.77%, one basis point higher than where they traded Tuesday.
Over the past week, muni-to-Treasury ratios have fallen as munis outperformed and became more expensive. The five-year ratio fell to 87.5% on Tuesday from 100% the week before. The 30-year ratio fell to 102.5% from 106.8% the week before.
The 10-year spot has reversed, with the ratio increasing to 93.9% on Tuesday from 93.3% the previous week.
The slope of the yield curve continues to flatten. The 10- to 30-year slope fell to 138 basis points from 146 the week before.
