Munis Higher For Week On Oversubscribed Primary

The tax-exempt market ended firmer for the week as investors put in more orders for bonds than were available on deals in the primary market. The secondary was firmer as the week progressed with dealers unloading balances from deals to customers at higher prices.

Muni Week in Review: November 15, 2013

Three triple-A rated issuers auctioned bonds in the competitive market and were priced on or richer than the benchmark scale in a sign of demand.

“The deals were well received and several were oversubscribed,” said Tom Metzold, co-director of municipal investments at Eaton Vance. “However, there is still an overhang of fear with respect to Detroit’s eligibility for bankruptcy and Puerto Rico’s fiscal problems.”

After headlines about hedge funds buying up Puerto Rico debt, muni market participants are wary about their participation in the market. Some traders say hedge funds are short-term buyers and bad for the market. Others say hedge funds are providing support for Puerto Rico debt and slowing the slide in prices. “Is this a trade or a longer-term investment horizon?” Metzold said. “Some people think hedge funds are snipers — moving in and out — but this could be a longer-term play if they are comfortable earning tax-exempt income.”

Fitch Ratings also placed BBB-minus Puerto Rico general obligation bonds on credit watch negative and said it would be resolved by June. Fitch affirmed Puerto Rico Sales Tax Financing Corporation (COFINA) bonds at AA-minus for the senior and A-plus for the subordinate debt.

The two-year Municipal Market Data yield fell one basis point for the week through Thursday to 0.33% and the 30-year yield fell two basis points to 4.13%. The 10-year yield rose three basis points to 2.61%.

The two-year Municipal Market Advisors yield dropped eight basis points for the week to 0.41% and the 10-year yield fell two basis points to 2.70%. The 30-year yield dropped three basis points to 4.33%.

The 20-Bond GO Index of 20-year general obligation yields increased eight basis points this week to 4.64%. The index is at its highest level since Oct. 17. The 11-Bond GO Index of higher-grade 20-year GO yields gained eight basis points this week, to 4.35%, which is its highest level since Oct. 17.

The Bond Buyer’s Revenue Bond Index, which measures 30-year revenue bond yields, rose five basis points this week, to 5.23%. This is the highest the index has been since Oct. 17. The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, based on 40 long-term bond prices, increased four basis points this week to 5.11%.

This is the highest weekly average for the yield to maturity since the week ended Oct. 24, 2013 (three weeks ago), when it was 5.16%.

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