The tax-exempt market ended Wednesday on a stronger note after steady to weaker trading Monday and Tuesday.
Traders said focus shifted to the secondary markets Wednesday after many deals in the primary market were priced Tuesday.
“It’s quite a bit stronger on the bid side,” a Chicago trader said. “I don’t know why but it’s significantly stronger. There are more bids in the secondary and it’s picking up in every way it can.”
Other traders agreed the market was busy after a relatively quiet start to the week. “There is a bit of buying,” a New York trader said. “And it’s stronger.”
While the secondary seemed to attract the focus of buyers Wednesday, new issues continued to price in the primary.
Bank of America Merrill Lynch priced $162.9 million of triple-A rated Connecticut State Revolving Fund general revenue bonds, following a retail order period Tuesday.
Yields on the first series, $123.5 million of general revenue bonds, ranged from 0.15% with a 1% coupon in 2014 to 2.53% with a 5% coupon in 2031. The bonds are callable at par in 2023.
Yields on the second series, $39.4 million of refunding general revenue bonds, ranged from 0.18% with a 2% coupon in 2014 to 2.55% with a 2.5% coupon in 2027. The bonds are callable at par in 2022.
In the competitive market, the Regents of the University of Minnesota auctioned $87.4 million of general obligation bonds in two pricings, rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.
Barclays Capital won the bid for $73.6 million. Yields ranged from 0.19% with a 2% coupon in 2014 to 3.17% with a 4% coupon in 2038. The bonds are callable at par in 2023.
BMO Capital Markets won the bid for $14.1 million of taxable bonds. Yields ranged from 0.50% with a 3.5% coupon in 2014 to 3.78% with a 3.75% coupon in 2038. The bonds are callable at par in 2023.
In the secondary market, trades compiled by data provider Markit showed a mix of both stronger and weaker trades.
Yields on Centre County, Pa., Hospital Authority 5s of 2032 and Metropolitan Atlanta Rapid Transportation Authority 4s of 2031 fell two basis points each to 3.57% and 3.03%, respectively.
Other trades were weaker. Yields on Tobacco Securitization Authority of Southern California 5s of 2037 jumped three basis points to 5.93% while New York City Transitional Finance Authority 5s of 2042 increased two basis points to 3.16%.
Yields on California Statewide Communities Development Authority 5s of 2042 and Georgetown, Texas, Independent School District 4s of 2020 rose one basis point to 3.35% and 1.42%, respectively.
Municipal bond market reads showed steady to stronger trading after losses on Tuesday.
Yields on the Municipal Market Data triple-A GO scale finished steady. The 10-year yield closed steady at 1.81% for the third session while the 30-year yield held flat at 2.86% for the second session. The two-year closed at 0.34% for the eighth session.
The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed steady to lower yields. The 10-year yield held steady at 1.84% for the sixth consecutive trading session while the 30-year yield closed flat at 2.95% for the second time. The two-year closed unchanged at 0.35% for the eighth session.
Treasuries were stronger Wednesday, reversing Tuesday’s losses. The benchmark 10-year yield dropped four basis points to 1.97% while the 30-year yield fell three basis points to 3.18%. The two-year yield fell one basis point to 0.26%.
In retail trades of under 100 bonds — or $100,000 par value — secondary activity was lower throughout the month of January than in December as spreads tightened and trading volume dropped, according to data from BondDesk Group, which compiled trades from Trade Reporting and Compliance Engine and the Municipal Securities Rulemaking Board.
“The median yield for municipal bonds remained close to the 12-month low that was set in December while credit spreads declined to reach a new 12-month low,” BondDesk Group analysts wrote. “Daily trade volume dropped sharply from December with an increase in the buy-to-sell ratio.”
Indeed, the median yield for all odd-lot customer buy transactions in January rose slightly higher than 2.5%. It hovers just above the 2.5% median yield in December but is the lowest in the previous 12 months. The median spread for odd-lot customer buy transactions compressed to under 0.5%, the first time in the past 12 months.
Still, the buy-to-sell ratio ticked up slightly to just under 2.0, higher than both November and December, both lower than other months in the past year.
Throughout January, the weighted average yield based on odd-lot customer buy transactions showed yields were generally lower on general obligation bonds than on revenue bonds.
The average triple-A rated five-year GO yielded 1.0% while the triple-A rated revenue bond yielded 1.1%. In the 10-year maturity, triple-A rated GOs yielded 1.5%, lower than the 1.7% on the triple-A rated revenue bond.
Further out on the curve, yields were even. The 20-year triple-A rated GO and revenue bond yielded 2.3%.
Looking down the credit scale, general obligation bonds continued to trade with higher prices. In January, the average five-year double-A rated GO had a 1.2% yield, down from a double-A rated revenue bond which yielded 1.3%. On a 10-year bond, double-A GOs yielded 1.8%, lower than the 1.9% yield on a 10-year revenue bond. However, the 20-year GO yielded 2.8% in January, up from the 2.7% double-A revenue bond.
In the single-A rated category, the difference was much bigger. The average five-year GO yielded 1.4%, lower than the 1.6% on the average five-year revenue bond. In the 10-year maturity, the average GO yielded 2.1%, lower than the 2.3% on a revenue bond. On a 20-year maturity, the GO yielded 2.6%, lower than the 3.0% on a single-A rated revenue bond.
In the triple-B rated sector, GO bonds yielded significantly more than their revenue counterparts. The five-year triple-A GO bond yielded 3.1%, up from the 2.8% on a revenue bond. The 10-year GO yielded 3.7%, up from the 3.5% on the revenue bond.
