The tax-exempt market ended on a softer note Wednesday as the primary market had a rare quiet session.
Many of the week’s largest deals priced earlier in the week. Munis remained steady even as the Treasury market strengthened following a worse-than-expected payroll growth report.
“It’s a dead market,” a New York trader said. “I’ve heard the words 'dead’ and 'stale’ to describe today’s market. The market might be waiting for Friday’s employment number and there’s not much activity to speak of.”
Ahead of Friday’s non-farms payroll report from the Bureau of Labor Statistice, private payroll growth as reported by ADP was up 135,000 in May from the revised 113,000 in April. Growth fell short of the 171,000 expected by economists.
“We will see how the official May figures fare on Friday morning but in the meantime, signs are pointing to a soft figure,” said Jennifer Lee, senior economist at BMO Capital Markets. “This morning’s ADP was very disappointing. These results are sending up flares warning of downside risk to May’s nonfarm payrolls, even to our already below-consensus 150,000 call for jobs.”
Still, munis didn’t follow the risk-off trade and headed lower. One trader focused on the high-yield market said he’s seen bonds as much as five to 10 points off. “It’s a liquidity thing and capital flows are all over the place,” the Rhode Island trader said. “When people open up their statements this week it will show the values of mutual funds and individual bond holdings, and they are going to be surprised because for an awfully long time the number went up and here’s a chance to see a reverse.”
Anything with yield attached has sold off hard, he said.
In one of the last major deals to price in the primary this week, Citi sold $267.1 million of Portsmouth, Va., general obligation taxable and tax-exempt refunding bonds, rated double-A by the rating agencies.
Bonds in the first series, $209.5 million of taxable GOs, were priced at par to yield from 0.45% in 2014 to 4.541% in 2037. Spreads ranged from 37 basis points to 180 basis points above the comparable Treasury yield.
Yields on the second series, $57.6 million of tax-exempt GO public improvement and refunding bonds, ranged from 0.25% with a 2% coupon in 2014 to 3.42% with a 5% coupon in 2035. The bonds are callable at par in 2023.
In the competitive market, Bank of America Merrill Lynch won the bid for $200 million of Kern County, Calif., tax and revenue anticipation notes, rated SP-1-plus by Standard & Poor’s. The notes yielded 0.18% with a 1.25% coupon in 2014.
In the secondary market, trades compiled by data provider Markit showed mostly weakening.
Yields on Los Angeles Department of Water and Power 5s of 2026 and University of Alabama 4s of 2043 rose three basis points each to 2.91% and 4.19%, respectively.
Yields on California’s Golden State Tobacco Securitization Corp. 5.125s of 2047 and Connecticut 5s of 2032 increased two basis points each to 6.25% and 3.20%, respectively.
Yields on New York 5s of 2019 and Miami-Dade County, Fla., 4s of 2037 rose two basis points each to 1.26% and 4.18%, respectively.
Wednesday, yields on the Municipal Market Data scale ended as much as three basis points weaker. The 10-year yield rose two basis points to 2.12%. The 30-year yield was flat at 3.29% for the second session and the two-year was steady at 0.30% for the third session.
Yields on the Municipal Market Advisors 5% scale ended as much as two basis points higher. The 10-year yield rose two basis points to 2.18% and the 30-year yield increased one basis point to 3.40%. The two-year finished steady at 0.36% for the sixth session.
Treasuries ended stronger on risk-off trade. The benchmark 10-year yield slid four basis points to 2.10% and the 30-year yield dropped five basis points to 3.25%. The two-year was steady at 0.30%.
In other news, economic activity grew “at a modest to moderate pace” across the nation, according to the Fed’s Beige Book released Wednesday afternoon. The Dallas Federal Reserve District “reported strong economic growth.”
Manufacturing expanded with in the Boston, Cleveland, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco districts all reporting improved activity. Contacts in the New York District call activity “steady,” while Philadelphia “manufacturers reported that orders and shipments have fallen somewhat, and in the Richmond District, manufacturing activity softened since the previous report, although there were scattered reports of improvement,” according to the report.
“The Fed’s Beige Book wasn’t too downbeat, but it wasn’t too upbeat either,” BMO’s Lee said. “I wouldn’t say it was just right, but all in, it points to generally modest growth in the second quarter.”
