Market Midday Post: Munis Continue Gains, Helped by Primary, Puerto Rico

The tax-exempt market posted gains Wednesday afternoon on positive reception from new deals in the primary and stronger Puerto Rico bonds over the past few weeks that gave traders some relief.

“Puerto Rico is not a 2013 issue,” a San Francisco trader said. “So you’ve taken out that event risk on the short-term. Puerto Rico might hit the wall somewhere in the early spring when economic numbers come in, they start missing targets, and the threat of a downgrade becomes real.”

Volatility in Puerto Rico, and the general bond market, has also fallen in recent weeks as most traders believe the Federal Reserve will delay tapering its $85 billion a month bond purchasing program until 2014. “The taper thing has taken away the interest rate risk. It’s going to be pushed off by six months,” this trader said. “So you’ve taken two big event risks out and there is a lot less volatility.”

In the muni market Wednesday, Siebert Brandford Shank & Co. priced for institutions $600 million of Connecticut special tax obligation debt for transportation infrastructure financing, following a retail order period Tuesday. The bonds are rated Aa3 by Moody’s Investors Service and AA by both Standard & Poor’s and Fitch Ratings. By Tuesday afternoon, retail had placed $155 million in orders.

In institutional pricing Wednesday morning, yields ranged from 0.56% with a 3% and 5% coupon in a split 2016 maturity to 4.25% priced at par and 4.11% with a 5% coupon in a split 2033 maturity. Bonds maturing in 2014 and 2015 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered as much as four basis points from retail pricing on bonds maturing between 2016 and 2023. Yields were raised one basis point on bonds maturing in 2028 and 2032.

Goldman, Sachs & Co. priced for institutions $618.1 million of New York’s Metropolitan Transportation Authority in two parts, rated A2 by Moody’s and A by Standard & Poor’s.

In institutional pricing Wednesday, yields on the first pricing of $500 million ranged from 0.45% with 3% and 5% coupons in a split 2015 maturity to 4.84% with a 5% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered as much as seven basis points from retail pricing Tuesday.

Yields on the second pricing of $118.1 million ranged from 3.23% with a 5% coupon in 2023 to 3.90% with a 5% coupon in 2027. The bonds are callable at par in 2023. Retail investors placed $17 million in orders on Tuesday. Yields were lowered one basis point from retail pricing on bonds maturing in 2026 and 2027.

Vallejo, Calif., came to market with $18 million of water revenue refunding bonds in its first public financing since it emerged from bankruptcy in 2011. De La Rosa priced the bonds, rated A-plus by Standard & Poor’s. Yields ranged from 4.32% with a 5.25% coupon in 2027 to 4.81% with a 5.25% coupon in 2031. The bonds are callable at par in 2023.

On Tuesday, yields on the triple-A Municipal Market Data scale ended as much as five basis points stronger. The 10-year yield slid four basis points to 2.44%. The two-year and 30-year yields fell one basis point each to 0.34% and 4.05%, respectively.

Yields on the Municipal Market Advisors benchmark scale ended as much as two basis points firmer. The 10-year slid one basis point to 2.62%. The two-year and 30-year yields were steady for the third session at 0.53% and 4.23%, respectively.

Treasuries were firmer Wednesday afternoon ahead of the Federal Open Market Committee meeting announcement. The benchmark 10-year yield slid three basis points to 2.48% and the 30-year yield fell one basis point to 3.61%. The two-year was steady at 0.32%.

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