Market Close: Munis Close Slightly Weaker Under Large Calendar

The tax-exempt market finished lower Thursday as traders said the market was weaker, driven by leftover balances from primary deals.

Traders noted that the market only slipped one or two basis points but that this week was the first of several recent weeks where underwriters were left with bonds on their books.

“Munis are giving up a little, but not much,” a San Francisco trader said. “There is a little bit of sympathy to Treasuries but it’s pretty muted.”

He added that “when you put a billion-plus deal on the calendar, people notice. When you put two of them in the same week it creates a little paralysis. And this time there are balances. It’s the first time in a while.”

He added the balances leftover are not substantial, but the market is lacking a catalyst for further appreciation.

Other traders agreed that selling pressure Thursday came from leftover supply.

“There is not a whole lot going on,” a New York trader said. “We are seeing some of the new issues that didn’t sell all their balances come into the market,” adding names like Orange County and New York’s Port Authority are trading.

One trader on Twitter noted there were sizeable balances left on the Port Authority of New York and New Jersey deal.

“There weren’t a ton of balances left but enough that there are some offerings,” the New York trader tweeted. “Some of the deals came cheap because the market was selling off about two weeks ago and it has since pounded back so a lot of customers are flipping those bonds now and coming back into the street.”

Overall, he added the market was one or two basis points cheaper.

In the primary market, Stifel Nicolaus & Co. priced $265 million of California’s Alameda Corridor Transportation Authority refunding bonds, rated A3 by Moody’s Investors Service and A by Fitch Ratings. Pricing details were not yet available.

Goldman, Sachs & Co. priced $198.8 million of JEA electric system revenue bonds.

The first series, $130.3 million of electric system revenue bonds, are rated Aa2 by Moody’s, AA-minus by Standard & Poor’s and AA by Fitch.

Yields ranged from 0.37% with a 5% coupon in 2014 to 2.39% with a 5% coupon in 2026. Bonds maturing in 2013 were offered via sealed bid.

The bonds are callable at par in 2022 except those maturing in 2024, 2025, and 2026 which are callable at par in 2018.

The second series, $68.5 million of electric system subordinated revenue bonds, are rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA by Fitch.

Yields ranged from 0.42% with a 5% coupon in 2014 to 2.98% with a 3% coupon in 2026. Bonds maturing in 2013 were offered via sealed bid.

The bonds are callable at par in 2022 except for those maturing in 2024, 2025, and 2026 which are callable at par in 2018.

In the competitive market, Bank of America Merrill Lynch won the bid for $62.1 million of Everett, Wash., water and sewer revenue refunding bonds, rated AA-plus by Standard & Poor’s.

Yields ranged from 0.25% with a 3% coupon in 2013 to 2.79% with a 3.5% coupon in 2030. The bonds are callable at par in 2022.

In the secondary market, trades compiled by data provider Markit showed mostly weakening.

Yields on Dallas-Fort Worth International Airport 4s of 2045 jumped four basis points to 4.00% while Port Authority of New York and New Jersey 3s of 2035 increased three basis points to 3.14%.

Yields on New York City Municipal Water Finance Authority 5s of 2047 and Mississippi 4s of 2023 rose one basis point each to 3.19% and 1.98%, respectively.

Most reads on the municipal bond market showed weakening.

The Municipal Market Data scale ended slightly weaker Thursday. The 10-year and 30-year yields jumped two basis points each to 1.69% and 2.74%, respectively. The two-year finished steady at 0.33% for the sixth session.

The 10-year MMD yield now trades 22 basis points above its record low of 1.47% set Nov. 28 while the 30-year MMD yield hovers 27 basis points above its 2.47% record low also set Nov. 28.

The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed weakening. The 10-year yield rose two basis points to 1.72% while the 30-year yield increased one basis point to 2.82%. The two-year was steady at 0.34% for the eight consecutive trading session.

Treasuries were weaker across the curve Thursday. The benchmark 10-year yield and the 30-year yield rose one basis point each to 1.85% and 3.04%, respectively. The two-year yield also increased one basis point to 0.26%.

Under the recent weight of new issuance, munis have underperformed Treasuries as the muni-to-Treasury ratio rose for the week.

The 10-year ratio increased to 91.8% on Thursday from 90.8% last Friday. The 30-year ratio also rose to 90.4% from 89.8% at the end of last week.

The five-year ratio was steady at 94.7%.

Still, overall for the year munis have outperformed Treasuries and ratios have fallen across the curve as muni yields have generally fallen faster than their taxable counterparts.

The five-year muni yield to Treasury yield ratio dropped to 94.7% on Thursday from 110.5% on Jan. 2.

The 10-year ratio slipped to 91.8% from 96.7% at the beginning of 2013 while the 30-year ratio fell to 90.4% from 93.8% at the start of the year.

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