Market Close: Munis Weaken On Supply, Softer Treasuries

The municipal bond yield curve steepened Tuesday with longer-dated bonds falling in price as Treasuries weakened and supply edged higher.

Bonds with shorter maturities rallied as investors sold bonds that mature beyond six years in favor of those within the five-year range. Issuers that came to market in the primary also raised yields on bonds maturing beyond six years.

“New deals are coming cheap,” a Chicago trader said. “No deals want inventory paper so they are priced to move.”

Other traders said the tone was steady to weaker after mostly firming last week. “Tuesday morning a lot of new wires come out for the week and I know the larger ones are what people focus on,” a New York trader said. “There was a decent amount of bid-wanted flow, which was moderate this morning.”

In the primary market, Bank of America Merrill Lynch priced for institutions $806.8 million of Hawaii general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.

Yields on the first series of $635 million ranged from 1.10% with a 5% coupon in 2018 to 4.16% with a 4% coupon and 4.00% with a 5% coupon in a split 2033 maturity. The bonds are callable at par in 2023.

Yields were lowered six basis points in institutional pricing on bonds maturing in 2018 but raised as much as nine basis points on longer-maturing bonds. Yields had already been raised one and two basis points on bonds maturing beyond 2021 from the first retail order period.

The second series of $35.6 million yielded 0.16% with a 5% coupon in 2014.

The third series of $58.6 million yielded 0.36% with 3% and 5% coupons in a split 2015 maturity. Yields were lowered one basis point in institutional pricing.

The fourth series of $27 million yielded 0.57% with 3% and 5% coupons in a split 2016 maturity.

Yields on the fifth series of $50.6 million ranged from 0.85% with a 3% coupon in 2017 to 2.76% with 3% and 5% coupons in a split 2023 maturity. Yields were lowered six basis points in institutional pricing on bonds maturing in 2018 but raised as much as eight basis points further out on the curve. Yields had already been raised one and two basis points on bonds maturing between 2021 and 2023 from the first retail pricing.

B of A Merrill also priced $54.8 million of taxable GOs for Hawaii. The first pricing of $25 million was priced at par to yield from 1.95% in 2018 to 4.80% in 2033. The second series of $29.8 million were priced at par to yield from 1.95% in 2018 to 4.80% in 2033. Bonds in both series are callable at par in 2023.

B of A Merrill also priced for institutions $373.8 million of triple-A rated Massachusetts transportation fund revenue bonds for the accelerated bridge program. Yields ranged from 2.45% with a 5% coupon in 2023 to 4.45% with a 4.375% coupon and 4.13% with a 5% coupon in a split 2043 maturity. The bonds are callable at par in 2021. Yields were raised five basis points on bonds maturing in 2023.

Citi held a second retail order period for $287.6 million of Massachusetts federal highway grant anticipation notes also for the accelerated bridge program. The bonds are rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch. Institutional pricing is expected Wednesday.

Yields ranged from 0.49% with 3% and 4% coupons in a split 2016 maturity to 3.47% with a 4% coupon and 3.27% with 5% coupon in a split 2027 maturity. The bonds are callable at par in 2022. Yields were lowered as much as three basis points on bonds maturing inside 2019.

B of A Merrill priced $462.6 million of New Jersey Economic Development Authority private activity bonds subject to the alternative minimum tax for the Goethals Bridge replacement project. The bonds are rated BBB-minus by Standard & Poor’s and Fitch.

Yields ranged from 3.20% with a 5% coupon in 2020 to 5.85% with a 5.625% coupon in 2052. The bonds are callable at par in 2024.

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

Yields on Temple, Texas, 5s of 2034 jumped seven basis points to 4.19% and Minot, N.D., 4s of 2020 rose five basis points to 2.02%.

Yields on Ohio State Building Authority 5s of 2020 and New York 5.25s of 2022 rose two basis points each to 2.27% and 2.74%, respectively.

Yields on California Health Facilities Financing Authority 5s of 2042 and North Carolina Medical Care Commission 5s of 2042 increased one basis point to 5.09% and 4.66%, respectively.

On Tuesday, the triple-A Municipal Market Data scale ended as much as five basis points weaker. The 10-year and 30-year yields rose five basis points each to 2.51% and 4.11%, respectively. The two-year was steady for the sixth session at 0.34%.

Yields on the Municipal Market Advisors benchmark scale ended as much as five basis points weaker. The 10-year yield rose three basis points to 2.65% and the 30-year yield increased five basis points to 4.30%. The two-year was flat for the fifth session at 0.48%.

Treasuries were much weaker Tuesday on longer maturing bonds. The benchmark 10-year and 30-year yields rose six basis points each to 2.67% and 3.76%, respectively. The two-year yield slid one basis point to 0.31%.

Investment grade municipal bonds as tracked by the S&P National AMT-Free Municipal Bond Index finished in positive territory for the month of October, returning 0.92%. Year to date, the index is down 2.06% “representing the culmination of news within the past few months regarding Detroit, Puerto Rico, and the arbitration results for those states that have issued tobacco settlement bonds,” analysts at S&P Dow Jones Indices wrote.

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