Market Post: Detroit Pays Yield Penalty; Sellers Emerge in Secondary

The secondary market took a backseat to the primary as some of the week’s largest deals priced Tuesday, including New Jersey’s Transportation Trust Fund Authority and triple-A rated Columbus, Ohio.

The headline name that drew investors’ attention Tuesday morning was $92 million of Michigan Finance Authority state aid revenue notes for the School District of Detroit, which yielded 4.5% priced at par maturing in August 2014. The bonds are rated SP-1 by Standard & Poor’s. Traders in the tax-exempt market said they expected the deal to be multiple times oversubscribed.

Outside the primary deals, the secondary market was weaker with many bids wanted surfacing in morning trading. “People are cutting bonds but there are still a lot of people on vacation,” a New York trader said. “Traditionally it’s a slow end of summer.”

Bank of America Merrill Lynch held preliminary pricing for the week’s largest deal, $849.2 million of the New Jersey Transportation Trust Fund Authority transportation program bonds. The bonds are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings.

Yields ranged from 0.68% with a 2.00% coupon in 2015 to 5.25% with a 5.00% coupon in 2044. The bonds are callable at par in 2023.

B of A Merrill also priced for institutions $302.4 million of triple-A rated Columbus, Ohio, general obligation bonds following retail pricing Monday.

Yields in the first series of $216.8 million of various purpose unlimited tax bonds ranged from 0.46% with a 5.00% coupon in 2015 to 4.53% with a 4.5% coupon in 2034. The bonds are callable at par in 2023.

Yields in the second series of $85.6 million of various purpose limited tax bonds ranged from 0.46% with a 4.00% coupon in 2015 to 4.28% with a 4.125% coupon in 2029. The bonds are callable at par in 2023.

Monday, yields on the triple-A Municipal Market Data scale ended as much as three basis points higher. The 10-year yield ticked up two basis points to 2.90% and the 30-year yield inched up one basis point to 4.40%. The two-year finished flat at 0.43% for the 24th straight session.

Yields on the Municipal Market Advisors scale also ended as much as three basis points higher Monday. The 10-year yield climbed two basis points to 3.04%; the 30-year yield also rose two basis points to 4.51%. The two-year was steady at 0.55% for the third session.

Treasuries were stronger Tuesday morning, making up Monday’s losses. The benchmark 10-year yield slid five basis points to 2.83% and the 30-year yield fell four basis points to 3.86%. The two-year yield fell one basis point to 0.35%.

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