Ahead of the largest deals of the week pricing in the municipal bond market Wednesday, tax-exempts had a stronger tone.
"The secondary is much better than it had been and it seems like munis want to have a typical Fall," a San Francisco trader said, referring to a generally constructive tone in the fixed-income markets heading into the fourth quarter. "We are getting help from distance from Detroit, better price action on Puerto Rico, and so the credit news is not as amplified. Munis look cheap to Treasuries and it looks like money is finding its way into bonds. And supply is reduced."
In the California market specifically, prices have firmed. "When California general obligations were north of 5% and the lesser credits were in the 5.25% to 5.50% range, it seemed like a relatively brief window before crossover buyers and retail come in," the trader said. "A nearly 10% taxable equivalent yield is worth it even if stocks keeping going up."
In the primary market, Barclays priced for institutions nearly $2.6 billion of Regents of the University of California general revenue bonds. The deal includes $700 million of tax-exempt bonds, $700 million of taxable bonds, $600 million of tax-exempt bonds issued in term mode, and $600 million of variable rate demand bonds. Prices were not available by press time.
The San Francisco trader said the deal looked rich. "The deal gets done. It looks expensive but the market has wind in its back so it will get subscribed for."
Siebert Brandford Shank & Co. is expected to price for institutions $500 million of New York City general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody's and AA by Standard & Poor's and Fitch.
In the second retail order period Tuesday, yields on the first series of $300 million ranged from 0.80% with a 3% coupon in 2016 to 4.24% with a 5% coupon in 2033 and are callable at par in 2023. Bonds maturing in 2015 were offered via sealed bid. Portions of bonds maturing between 2026 and 2030 were not offered for retail.
Yields were lowered one to two basis points from the first retail order period on bonds maturing between 2025 and 2033. Bonds with 5% coupons maturing between 2021 and 2033 were priced to yield 18 basis points to 22 basis points above Monday's double-A Municipal Market Data scale.
Yields on the second series of $179 million ranged from 0.80% with a 4% and 5% coupon in a split 2016 maturity to 2.26% with a 4% and 5% coupon in a split 2020 maturity. Bonds with 5% coupons were priced to yield six basis points to 16 basis points above Monday's double-A MMD scale.
Yields on the third series of $20.2 million ranged from 0.60% with a 5% coupon in 2016 to 2.11% with a 5% coupon in 2020. In a sign of demand, most bonds on this series were priced richer than Monday's double-A MMD scale, to yield between four and 14 basis points through the scale on bonds maturing between 2016 and 2019. Bonds maturing in 2020 were priced to yield one basis point above the scale.
New York City will also auction $125 million of taxable GOs.
On Tuesday, yields on the triple-A Municipal Market Data scale ended as much as five basis points lower. The 10-year yield fell three basis points to 2.56% and the 30-year yield dropped four basis points to 4.13%. The two-year was steady at 0.36% for the third session.
Yields on the Municipal Market Advisors scale ended as much as four basis points lower. The 10-year and 30-year yields slid four basis points each to 2.70% and 4.25%, respectively. The two-year was steady at 0.54% for the fourth consecutive trading session.
Treasuries were mostly weaker Wednesday morning after three consecutive sessions of gains. The two-year yield rose three basis points to 0.36% and the 30-year yield increased one basis point to 3.68%. The benchmark 10-year yield slid one basis point to 2.65%.
In economic news, durable goods orders rose 0.1% in August, modestly above forecasts, but were down 0.1% excluding transportation, which was weaker than expected.
"This is a rather ho-hum report on conditions in the manufacturing sector that does not corroborate the strength in orders suggested by the August ISM survey," wrote economists at RDQ Economics. "These data throw something of a fog over the pace growth in the manufacturing sector and raise the importance of the September ISM data. Durable goods inventories appear to be relatively neutral for third-quarter GDP growth arithmetic and well-contained in relation to shipments. Our guess is that this report is understating growth in manufacturing but we will have to wait for more data to corroborate or reject this hypothesis."
In other economic news, new single-family home sales rose 7.9% to 421,000 annual rate in August, coming in above the 420,000 expected by economists.
"Monthly estimates of new home sales are very volatile and revision prone and, therefore, are fairly unreliable," RDQ economists wrote. "The level of new home sales in August is in line with its three- and 12-month average and, therefore, we argue that July's drop in home sales significantly overstated any pullback in the sector. Homebuilder confidence remains high despite the increase in mortgage rates, mortgage purchase applications have begun to rise again, and we see no evidence that higher financing costs have caused a significant retrenchment in home purchases."
