Retail order periods kicked off an otherwise quiet session Monday as traders said summer vacations slowed down activity in the secondary.
Still, two large deals— from Connecticut and Florida's JEA — were priced for retail investors that were met with demand.
M.R. Beal & Co. held its first day of retail pricing on $350 million of Connecticut general obligation bonds. A second day of the retail order period is expected Tuesday, followed by institutional pricing Wednesday. The bonds are rated Aa3 by Moody's Investors Service and AA by Standard & Poor's, Fitch Ratings, and Kroll Bond Ratings.
The first series of $115 million of GO SIFMA index bonds were not offered for retail.
Yields on the second series of $235 million of GOs ranged from 0.47% with a 4% coupon in 2015 to 4.50% with a 4.375% coupon in 2033. Bonds maturing in 2014, 2026, 2027, and between 2029 and 2032 were not offered to retail. The bonds are callable at par in 2023.
Retail pricing on $193.6 million of JEA electric system bonds by RBC Capital Markets was met with demand as underwriters halted orders on bonds maturing on the short end of the curve. Institutional pricing is expected Tuesday.
The first series of $32.7 million of revenue bonds is rated Aa2 by Moody's, AA-minus by Standard & Poor's, and AA by Fitch. Bonds were not offered to retail.
The second series of $160.9 million of subordinated revenue bonds is rated Aa3 by Moody's, A-plus by Standard & Poor's, and AA by Fitch.
Yields ranged from 0.68% with a 3% coupon in 2015 to 5% priced at par in 2035. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2018 except for those maturing in 2019.
Outside the few primary deals pricing in the retail market Monday, municipal bond trading was quiet. "It's fairly quiet," a New York trader said. It's a muni Monday."
"It's dead this morning," a second New York trader said who focuses on institutional trading in the secondary market. "It's vacation time."
Trades compiled by data provider Markit showed strengthening Monday.
Yields on San Francisco Public Utilities Commission 5s of 2043 slipped 12 basis points to 4.61% and American Municipal Power of Ohio 5s of 2042 fell four basis points to 5.13%.
Yields on Ohio 4s of 2031 and Alabama State Public School and College Authority 5s of 2022 fell one basis point to 4.35% and 1.91%, respectively.
While Monday was quiet, some market participants recommended using this opportunity to shorter the duration of bonds in a portfolio and revisit credit risk.
As yields have risen over the past several months, absolute yields and relative yields offer a similar range of actions to investors, said John Dillon, chief municipal bond strategist at Morgan Stanley Wealth Management, including adding new positions at higher yields and limiting duration.
"In the aftermath of the May-June volatility, a period when the 10-year Treasury was generally range-bound, longer-term municipal yields kept rising," he said. "The largest muni-specific adjustments occurred beyond 10 years. In fact, longer benchmark tax-exempt yields increased almost twice as much as corresponding Treasury yields."
The market is bifurcated into two ranges with buyers inside 10 years and buyers outside 10 years. Dillon maintains a five- to 11-year maturity focus with higher coupons given 68% of the yield curve can be captured by year 11, and 90% by year 18.
Through Friday, the one- to 30-year slope of the triple-A yield curve steepened to 410 basis points, up from 259 basis points on May 1. It has risen from 264 basis points at the beginning of the year.
The one- to 10-year slope steepened to 254 basis points through Aug. 9, up from 146 basis points on May 1. It rose from 156 basis points at the beginning of the year.
The one- to five-year slope also steepened significantly to 113 basis points from 53 basis points at the beginning of May. The slope started the year at 62 basis points.
Still, buyers remain hesitant. "We now know that the May and June move was anything but mild, and it's clear that investors remain concerned over interest rate risk and are treading cautiously, despite compelling relative value," Dillon said.
Dillon also recommends single-A rated general obligation bonds and triple-B essential service revenue bonds. "Spreads remain wide to their historical averages, and offer additional yield without extending too far out on the credit curve."
Spreads between the triple-A to single-A two-year yield widened to 28 basis points on Aug. 9 from 24 basis points on May 1. The spread on the 10-year yield widened to 75 basis points from 65 basis points. And the 30-year triple-A to single-A spread grew to 76 basis points from 70 basis points.
Monday, yields on the Municipal Market Data scale ended steady after an unchanged session Friday. The 10-year yield closed unchanged at 2.72% for the third session and the 30-year was steady at 4.28% for the fifth session. The two-year finished flat at 0.43% for the 19th consecutive session.
Yields on the Municipal Market Advisors scale were mostly flat to one basis point higher on longer maturing bonds. The 10-year yield fell one basis point to 2.89% while the 30-year yield increased one basis point to 4.34%. The two-year yield was unchanged at 0.54% for the fourth session.
Treasuries ended weaker Monday after a stronger session Friday. The benchmark 10-year and 30-year yields rose three basis points each to 2.61% and 3.67%, respectively. The two-year was steady at 0.31%.
