Market Post: In Sharp Reversal, Yields Plunge as Buyers Emerge

Issuers in the tax-exempt market had a field day Wednesday as a bevy of borrowers tapped the primary market and deals were met with solid demand.

Nearly every deal that priced was able to bump prices and lower yields as demand surfaced following a massive cheapening of the market over the past weeks.

"Munis have gotten so cheap relative to Treasuries since May 1," a Los Angeles trader said. "The long end of munis are up 134 basis points versus 77 basis points in Treasuries. Ratios are around 115% and that's the high end. Our buy signal is 120%."

In one of the most impressive deals, Wells Fargo priced and repriced $1.3 billion of Illinois general obligation bonds, rated A3 by Moody's Investors Service and A-minus by Standard & Poor's and Fitch Ratings. Traders said the deal was six-and-a-half times oversubscribed.

Yields ranged from 0.47% with a 4% coupon in 2014 to 5.65% with a 5.50% coupon in 2038. The bonds are callable at par in 2023. Bonds maturing in 2014, 2023, 2028, and 2033 are insured by Assured Guaranty Municipal Corp.

In repricing, yields were tightened as much as 14 basis points. Bonds maturing between 2019 and 2029 saw the biggest drop in yields, mostly 10 to 14 basis points. Yields on bonds maturing before 2018 were lowered six and eight basis points. That compares to yields on the Municipal Market Data scale lowering yields between 18 and 22 basis points on bonds maturing beyond 2017 early Wednesday afternoon.

Yields had already been lowered 10 basis points from pre-marketing levels released Tuesday evening on bonds maturing outside 2019.

"The problem with munis is you can't short or hedge them. So when you have forced selling and fund redemptions, rates start adjusting more and more and you have a typical shake out. But today it feels like we found some footing."

In other primary market deals, De La Rosa & Co. priced $1.324 billion of tax and revenue anticipation notes for Los Angeles. The notes are rated MIG-1 by Moody's, SP-1-plus by Standard & Poor's, and F-1-plus by Fitch.

The first series of $266 million yielded 0.16% with a 2% coupon in 2014. The second series of $530.2 million yielded 0.17% with a 2% coupon in 2014. The third series of $528.6 million yielded 0.18% with a 2% coupon in 2014.

Goldman, Sachs & Co. priced $471.5 million of California's Riverside County Transportation Commission sales tax revenue bonds, rated Aa2 by Moody's, AA-plus by Standard & Poor's, and AA by Fitch.

Yields ranged from 2.05% with a 5% coupon in 2018 to 4.80% with a 5.25% coupon in 2039. The bonds are callable at par in 2023.

Bank of America Merrill Lynch priced more than $200 million of toll revenue senior lien bonds for the Transportation Commission rated BBB-minus. The Los Angeles trader said bonds maturing in 2044 and 2048 were 16 times oversubscribed and yields were lowered 20 basis points.

Morgan Stanley priced $235 million of New York State Thruway Authority state personal income tax revenue bonds, rated AAA by Standard & Poor's and AA by Fitch.

Yields ranged from 0.519% with a 3% coupon in 2015 to 4.17% with a 5% coupon in 2033. The bonds are callable at par in 2023. Yields were lowered five to 15 basis points from preliminary pricing.

In the competitive market, triple-A rated Georgia auctioned $685 million of GOs in three pricings. JPMorgan won the bid for the first pricing of $427.4 million. Citi won the bid for the second and third pricings of $163.2 million and $94.4 million. Pricing details were not available by press time.

Tuesday, yields on the Municipal Market Data scale ended as much as five basis points higher. The 10-year yields rose one basis point to 2.81%. The two-year and 30-year yields were steady at 0.55% and 4.13%, respectively.

Yields on the Municipal Market Advisors 5% scale closed mixed with yields on the short end rising as much as one basis point and yields on the long end falling as much as two basis points. The two-year and 10-year yields rose one basis point each to 0.59% and 2.97%, respectively. The 30-year yield fell two basis points to 4.21%.

Treasuries were stronger Wednesday afternoon. The benchmark 10-year yield slipped four basis points to 2.55% and the 30-year yield fell two basis points to 2.58%. The two-year yield fell one basis point to 0.40%.

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