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Market Close: Price Plunge Shows Little Sign Of Slowing

The tax-exempt market took another beating Monday as the 10-year yield rose to a 24-month high and traders said demand for municipal bonds was still deteriorating.

“It’s ugly out there and getting worse,” a Chicago trader said.

In the primary, some underwriters postponed deals, while others came to market -- and paid a steep price. In the secondary, munis were in a free fall.

“Part of the story is the new issues guide the secondary and there is not a lot of information coming out of the primary market,” said Adam Buchanan, vice president at Ziegler Capital Markets. “It’s making it more difficult to figure out what stuff is worth.”

Liquidity has also become a big problem in this selloff. “The ability to stock bonds has diminished so we are feeling the effects of that,” Buchanan said. “In other corrections, there would be bids from desks and market makers. That hasn’t materialized yet.”

The 10-year yield on the Municipal Markets Data scale jumped 17 basis point to 2.80%, the highest since May 2011.

Triple-A rated Georgia pulled its $157 million advance refunding auction expected to come in the competitive market Wednesday. The state pulled the deal because it doesn’t meet the minimum savings threshold of 4% .

RBC Capital Markets announced it had postponed $129 million of Pennsylvania Housing Finance Agency single-family mortgage revenue bonds expected to price Wednesday.

Citi priced deals and sold for retail $395 million of New York State Environmental Facilities Corp. state clean water and drinking water revolving funds for New York City Municipal Water Finance Authority projects. The bonds are rated Aaa by Moody’s Investors Service, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings. Institutional pricing is expected Tuesday.

Yields ranged from 0.68% with 3% and 5% coupons in a split 2015 maturity to 4.375% priced at par and 4.24% with a 5% coupon in a split 2033 maturity. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.

Yields on bonds with 5% coupons were priced 25 basis points to 55 basis points above Friday’s Municipal Market Data scale.

Citi also issued a pre-marketing wire for $532.3 million of Michigan State Building Authority revenue and revenue refunding bonds, rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch.

Yields ranged from 1.33% with a 5% coupon in 2015 to 5.375% with a 5.25% coupon in 2047. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023. The bonds were marketed at 90 basis points to 148 basis points above the MMD scale.

In the afternoon trading session, market participants said the market felt worse than last Thursday and Friday and yields were up at least 20 basis points outside 10 years.

“It’s worse today,” the Chicago trader said. “We are buying today at levels that are 200 basis points cheaper than a month ago on the 10-year.” In odd-lot trading, he bought a double-A 15-year 4.75% coupon bond at 5%.

“There are good deals now and it’s definitely getting cheaper. Retail is starting to dip their toes in but with the institutional selling and the size of the calendar it won’t make a difference.”

Still, other traders said the market started to feel a little better than last week. “It doesn’t seem as bad,” a Boston trader said, adding buyers were just starting to show interest in the market again. “When you can sell 5% coupon bonds to retail near par, they come out of their bunkers.”

This trader said the market was five to 10 basis points weaker but was very credit-specific. “Some credits are holding in much better than others,” he said.

“We don’t seem to be getting the panic phone calls today,” the trader said. “The initial surge last week was the nervous nelly retail who want to get out instantaneously. Now they are out of the way and we have people who have the benefit of historical knowledge and don’t need to completely panic. Some munis are 140% of Treasuries and that’s ludicrous. People are starting to poke their heads up.”

In the secondary market, trades compiled by data provider Markit showed weakening across the curve. Yields on Dallas Water Works and Sewer System 5s of 2018 jumped 23 basis points to 2.00% and California’s Golden State Tobacco Securitization Corp. 5s of 2033 spiked 22 basis points to 7.15%.

Yields on Delaware Transportation Authority 5s of 2022 increased 18 basis points to 3.11% and Denton, Texas, 3.25s of 2032 rose 14 basis points to 5.05%.

Yields on the MMD scale ended as much as 20 basis points higher Monday. The 10-year and 30-year yields jumped 17 basis points each to 2.80% and 4.13%, respectively. The two-year yield increased 12 basis points to 0.55%.

Yields on the Municipal Market Advisors 5% scale closed as much as 19 basis points higher. The 10-year jumped 18 basis points to 2.96% and the 30-year yield spiked 15 basis points to 4.23%. The two-year yield jumped eight basis points to 0.58%.

Treasuries continued to weaken, though less so than their tax-exempt counterparts. The two-year yield increased three basis points to 0.40% and the benchmark 10-year yield jumped six basis points to 2.57%. The 30-year was steady at 3.57%.

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