The pricing of many of the week's largest deals Tuesday generated little excitement as traders made selective purchases in an otherwise quiet municipal bond market.
With the government shutdown in its second week and the debt ceiling deadline approaching, yields ended as much as two basis points higher on municipal benchmark scales on limited supply, continued outflows from bond funds, and concerns over Puerto Rico's Sales Tax Financing Corp. following a downgrade last week.
"It's stable but a trade-by-appointment day," a Chicago trader said. "It's a new quarter, we've got no supply, and some outflows. There are just a lot of cross currents and anytime there is uncertainty in the environment, there is not a lot of money generation."
This trader said money is being put to work across the yield curve selectively. "Supply should stay subdued for a couple more weeks. You need to get secondary traders that are tired of these blocks and they'll go cheaper to shake it out."
Another trader said bid lists surfaced Tuesday morning, putting some selling pressure on the market. "There are lots of bids-wanted out there but it's not moving the market either way," a New York trader said. "It's quiet."
"There are no new issues worth mentioning," a trader in Maryland said. "I feel like we fell down the rabbit hole and ended up in wonderland. Times are just so different now with Detroit GOs defaulting and hanging on by a thread. It's flat and slow."
Puerto Rico Electric Power Authority bonds were trading firmer with more volume as of Tuesday morning, a second Chicago trader said. The daily volume of PREPA trading was 360% more than the previous five Tuesdays, with $33 million in trades versus the previous five Tuesday with an average of $7.2 million.
In a block size trade, PREPA 5.5s of 2038 yielded 8.39%, up in price from the previous yield of 8.43%.
"Up until now, we've been in the camp of those favoring PREPA as one of the 'better' PR credits, for the simple reason that it is an essential monopoly and is somewhat financially self-sufficient, unlike Puerto Rico Aqueduct and Sewer Authority," wrote Triet Nguyen, managing partner of Axios Advisors LLC. "However, we're disturbed by rising calls from local public officials for a 'restructuring' of the utility, which residents blame for the high costs of electricity on the island."
COFINA bonds were the most actively traded muni, the second Chicago trader said, following Thursday's downgrade to A2 from Aa3 by Moody's Investors Service.
In block size trading, COFINA 0s of 2042 yielded 8.29%, down in yield from the 8.322% traded earlier in the day.
"Puerto Rico COFINA seniors continue to trade weaker in a continuation of the price action from Monday," said analysts at Interactive Data. "The current bid-side of COFINA seniors 5s of 2040 is now higher than 7% in yield. The continued weakening of the seniors is now impacting the subordinate bonds, as reflected by recent trades."
In the primary market, JPMorgan held preliminary pricing for $434.2 million of Broward County, Fla., airport system revenue bonds, rated A1 by Moody's, A-plus by Standard & Poor's, and A by Fitch Ratings.
Yields on the first series, $164.5 million subject to the alternative minimum tax, ranged from 0.82% with a 3% coupon in 2015 to 5.41% with a 5.25% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.
Yields on the second series of $55.4 million of non-AMT ranged from 0.59% with a 3% coupon in 2015 to 5.06% with a 5% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.
Yields on the third series of $214.3 million of non-AMT, ranged from 0.59% with a 3% coupon in 2015 to 5.01% with a 5.25% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.
Morgan Stanley priced $405.9 million of Oregon Department of Transportation highway user tax revenue senior lien bonds, rated Aa1 by Moody's, AAA by Standard & Poor's, and AA-plus by Fitch. The institutional order period was accelerated a day to be held the same day as retail pricing.
In institutional pricing, yields ranged from 0.15% with a 2% coupon in 2014 to 4.18% with a 5% coupon in 2038. The bonds are callable at par in 2023. Yields were lowered as much as five basis points across the curve from retail pricing.
Jefferies & Co. held preliminary pricing for $250 million of City Colleges of Chicago community college district unlimited tax general obligation bonds, rated AA by Standard & Poor's and AA-minus by Fitch.
Yields ranged from 0.70% with a 4% coupon in 2015 to 5.39% with a 5.25% coupon in 2043. The bonds are callable at par in 2023.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on New York City Transitional Finance Authority 5s of 2042 slid two basis points to 4.41%. Yields on California Educational Facilities Authority 5.25s of 2024 and Los Angeles Department of Water and Power 5s of 2029 fell one basis point each to 2.81% and 3.74%, respectively.
Other trades were weaker. Yields on California's Golden State Tobacco Securitization Corp. 5.125s of 2047 increased five basis points to 7.80% and yields on New Jersey Economic Development Authority 5s of 2027 rose three basis points to 3.95%.
Yields on Columbus, Ohio, 5s of 2024 and Fulton County, Ga., Development Authority 5.25s of 2039 rose one basis point each to 2.86% and 4.70%, respectively.
On Tuesday, yields on the triple-A Municipal Market Data scale ended as much as two basis points higher. The 30-year yield rose one basis point to 4.12%. The 10-year was flat for the fifth session at 2.54% and the two-year was steady for the sixth session at 0.37%.
Yields on the Municipal Market Advisors benchmark scale also ended as much as two basis points higher. The two-year and 10-year yields rose one basis point each to 0.55% and 2.71%, respectively. The 30-year yield increased two basis points to 4.28%.
The Treasury yield curve flattened throughout the trading session. The two-year yield jumped five basis points to 0.40%. The benchmark 10-year was steady at 2.64% and the 30-year yield fell one basis point to 3.70%.
