Market Close: Selloff Slows As Munis Stabilize, Retail Emerges

The selloff in the tax-exempt market slowed as retail buyers resurfaced after Treasuries gained on worse-than-expected economic data.

After yields rose almost 10 basis points each of the previous two days, they edged  only two basis points higher Thursday.

Early morning economic data helped support fixed income assets. Real gross domestic product increased at an annual rate of 2.4% in the first quarter of 2013, coming in short of the 2.5% expected by economists.

Initial jobless claims rose 10,000 to 354,000 for the week ended May 25, coming in above the 340,000 expected by economists.

Economists weren’t concerned. “The rise in jobless claims in the latest week does little to change our view that the pace of job creation may be picking up,” wrote economists at RDQ Economics. “The four-week average of claims has been below the 350,000 mark for five consecutive weeks and it is difficult to attribute the latest increase in claims, at this point, to anything other than normal volatility.”

Still, the selloff in munis                slowed. “It feels like the market has stabilized a bit and retail has come in a little,” a Texas trader said. “Retail bid wanteds have been heavy. Today it’s not as much but some of this yield backup seems to have sparked retail interest a bit.”

This trader added that the selloff could be limited. “You won’t see a 200 basis point back up in yields. But if it’s 50 basis points, money will come back in. And we are off now about 37 basis points for May and we are starting to see some signs of retail becoming more interested.”

Other traders agreed. “It’s slightly weaker I hear, but not as bad as the last couple days,” a New York trader said.

In the primary market, JPMorgan priced for institutions $500 million of New York’s Metropolitan Transportation Authority revenue bonds, rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings.

Yields ranged from 0.16% with a 2% coupon in 2013 to 4.17% with a 4% coupon in 2043. Credits maturing between 2024 and 2030 are callable at par in 2018. The remainder of the issue, except credits maturing in 2023, is callable at par in 2023.

Yields were lowered two basis points on bonds maturing in 2016 but were raised as much as eight basis points on bonds maturing between 2017 and 2023. Yields on bonds maturing in 2031 and 2032 were raised 15 basis points and 14 basis points, respectively. Yields on bonds maturing in 2038 and 2042 were raised 11 basis points and nine basis points, respectively. Bonds maturing in 2033 and 2043 were oversubscribed in retail pricing and yields were subsequently lowered one and three basis points, respectively.

Bank of America Merrill Lynch priced $120 million of Clark County, Nev., airport system junior subordinate lien revenue notes, rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s. The notes yield 0.35% with a 2% coupon in 2014.

Jefferies priced $104.4 million of triple-A rated Virginia Resources Authority clean water state revolving fund revenue bonds. Yields ranged from 0.22% with a 1% coupon in 2013 to 2.58% with a 5% coupon in 2025. The bonds are callable at par in 2023.

Bonds with 5% coupons yielded 17 basis points to 28 basis points above the Municipal Market Data scale.

In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 jumped nine basis points to 6.61%.

Yields on University of Connecticut 5s of 2025 and New Jersey Transportation Trust Fund Authority 5s of 2042 rose four basis points each to 2.55% and 3.94%, respectively.

Yields on Wisconsin 5s of 2018 and California’s Bay Area Toll Authority 7.043s of 2050 increased two basis points each to 1.13% and 4.79%, respectively.

Yields on Lamar, Texas, Consolidated Independent School District 5s of 2024 increased two basis points to 2.44%.

Some market participants said trading volume is down in the secondary, making price discovery difficult. “Exactly how cheap the market has moved remains difficult to ascertain with volumes off so much,” said Dan Toboja, vice president at Ziegler Capital Markets.

“The trade we’ve mentioned in the past of participants buying the long discounts on new issues and hoping for a stable market so retail can slowly chew through had become very crowded. With the long end of munis selling off about 40 basis points in the last month, that trade has been particularly painful. New issue supply remains light this week, which is further hampering price discovery and causing volatility on the secondary.”

Yields on the MMD scale ended Thursday as much as two basis points higher. The 30-year yield increased two basis points to 3.22%. The 10-year was steady at 2.07% and the two-year finished flat at 0.29% for the fifth session.

Yields on the Municipal Market Advisors 5% scale ended as much as one basis point higher. The 10-year and 30-year yields rose one basis point each to 2.12% and 3.32%, respectively. The two-year finished steady at 0.36%.

Treasuries ended mostly stronger. The two-year and benchmark 10-year yield slid one basis point each to 0.30% and 2.12%, respectively. The 30-year yield increased one basis point to 3.28%.

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