Traders in the tax-exempt market focused on new issues in the primary market Tuesday as most yields were lowered on bonds maturing within 10 years.
Demand remained on the short-end of the curve and deals were priced with yields through the Municipal Market Data scale on 2015 to 2017 maturities on the $270 million Empire State Development Corp. issue.
In the secondary market, Puerto Rico was on the minds of most traders following reports that the commonwealth would scale back new issuance for the remainder of the year in response to recent yield increases.
"People are starting to dip their toe in the water but bonds are trading at 60 cents on the dollar," said a trader located on the West Coast. "What's the solution? Puerto Rico wants to wait until everyone figures out the economy is thriving? It's only going to get worse. They've been in a recession for six years. It's a slow moving train wreck."
This trader added there were general obligation bonds maturing in 2027 yielding 9.84%. "That is in the 50 cents on the dollar range. How are you going to price a new issue at par? Everyone is long munis and everyone will say things are getting better but then why is COFINA down so much?"
In the general market, munis still look attractive on a relative basis, the trader said, which should help support the market in the near-term. "As long as you have tightening spreads and a reduction of volatility in Treasuries, munis will hold in. It's the volatility that kills us. So as long as volatility stays low, we can hold in there for the time being."
In the primary market Tuesday, Bank of America Merrill Lynch won the bid for $484.5 million of New York's Empire State Development Corp. personal income tax revenue bonds, rated AAA by Standard & Poor's and AA by Fitch Ratings. Yields ranged from 3.40% with a 5% coupon in 2024 to 4.58% with a 5% coupon in 2033. The bonds are callable at par in 2023. Spreads ranged from 23 basis points to 40 basis points above Monday's Municipal Market Data scale.
The issuer also sold $271.9 million of personal income tax revenue bonds to Goldman, Sachs & Co. Yields ranged from 0.38% with a 5% coupon in 2015 to 3.23% with a 5% coupon in 2023. Spreads ranged from as much as six basis points through the scale on bonds maturing between 2015 and 2017 to 24 basis points above the scale on bonds maturing between 2018 and 2023.
Also in the competitive market, Bank of America Merrill Lynch won the bid for $495 million of Arkansas general obligation four-lane highway construction and improvement bonds, rated Aa1 by Moody's Investors Service and AA by Standard & Poor's. Yields ranged from 0.20% with a 2% coupon in 2014 to 3.44% with a 3.5% coupon in 2033. The bonds are callable at par in 2021.
In the negotiated market, JPMorgan priced for institutions $193.9 million of Monroe County Industrial Development Corp. revenue bonds for the University of Rochester project. The bonds are rated Aa3 by Moody's and AA-minus by Standard & Poor's and Fitch.
Yields on the first series of $118.7 million ranged from 0.60% with a 3% coupon in 2015 to 5.07% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered between one and three basis points on bonds maturing between 2015 and 2024 from retail pricing Monday.
Yields on the second series of $75.2 million ranged from 0.33% with a 2% coupon in 2014 to 5.07% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered as much as four basis points from retail pricing Monday.
Monday, yields on the triple-A Municipal Market Data scale ended as much as two basis points lower. The 10-year yield slid two basis points to 2.99%, falling below 3.00% for the first time since Aug. 30. The 30-year yield fell one basis point to 4.48%. The two-year was steady at 0.43% for the 38th straight session.
Yields on the Municipal Market Advisors scale also ended as much as three basis points firmer. The 10-year fell two basis points to 3.12% and the 30-year yield dropped one basis point to 4.59%. The two-year closed unchanged at 0.55% for the 17th session.
Treasuries continued to weaken Tuesday afternoon. The benchmark 10-year yield rose five basis points to 2.95%. The two-year and 30-year yields rose three basis points each to 0.47% and 3.87%, respectively.
