Market Post: Falling Yields Hide Retail Torpor

Scales tracking the municipal market may forecast lower yields across most of the spectrum of the curve Tuesday, but the scene for retail investors is a quiet one.

High-grade, tax-exempt 5s structured for institutions are attracting interest, a trader in Texas said. But there is little draw for retail-type credits, for example those with 3% coupons.

"Retail seems quiet; it feels creaky to me," he said. "Even though they're talking about bumping the scale, all of that has to do with 5s and institutions and rah, rah, rah. When you talk about 3s and the world of retail, it's pretty slow."

This week, $7.80 billion of bonds is expected to reach the primary, almost doubling last week's revised $4.20 billion.

More retail orders reached the market Tuesday, including the second such order period for $839.1 million of New York City general obligation debt. Morgan Stanley priced the deal, structured in six series, for retail Monday. Yields hardly budged Tuesday.

The city still expects to sell all of the bonds to retail over the two-day retail order period. Institutions can clean up anything that remains by Wednesday.

The bonds are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings. Yields for the first series, $500 million, range from 0.80% with a 5.00% coupon in 2017 to 3.561% with a 3.50% coupon in 2038.

Credits maturing in 2015 were offered in a sealed bid; those maturing in 2037 were not available for retail. The bonds are callable at par in 2023.

Yields in a second series, $222.6 million, range from 0.45% with a 2.00% coupon in 2015 to 3.391% with a 3.375% coupon in 2034. Credits maturing in 2014 were offered in a sealed bid.

The bonds are callable at par in 2023. Debt maturing between 2021 and 2023 was lowered by one basis point for the second day of the retail order period.

Credits in four series that total $116.4 million were not offered to retail.

The deal received about $147 million in orders on the first day of retail, Alan Schankel, a managing director at Janney Capital Markets, wrote in a research brief.

JPMorgan priced $392.1 million of Houston Community College System Harris and Fort Bend Counties, Texas, limited tax GOs. The bonds are rated Aa1 by Moody's and AA-plus by Standard & Poor's.

Yields range from 0.41% with a 3.00% coupon in 2015 to 3.27% with a 5.00% coupon in 2043. The bonds are callable at par in 2023.

Muni yields have continued their measured descent heading into Tuesday afternoon, according to the Municipal Market Data triple-A GO scale. While the front end of the curve remained steady, yields of credits maturing between three and five years are flat to three basis points lower. And those between six and 13 years are three to six basis points lower. Beyond 13 years, yields have fallen one to four basis points.

At Monday close, the 10-year triple-A skipped down one basis point to 1.89% while the 30-year ended the day at 2.94% for the third straight session. The two-year closed at 0.31% for the fifth session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended Monday flat to one basis point lower. The 10-year yield held at 1.90% for the fourth session. The 30-year yield closed at 3.02% for the third session. The two-year slipped one basis point to 0.34%.

By noon, Treasury yields beyond the front end of the curve have started to fall. The benchmark 10-year yield has dropped four basis points to 1.85%. The 30-year yield slid three basis points to 3.05%. The two-year yield remained unchanged at 0.25%.

In economic news, sales of new single-family houses in January vaulted 15.6% to a seasonally adjusted annual rate of 437,000, the Commerce Department reported Tuesday. The torrid sales pace followed a revised rate of 378,000 in December, which had been reported initially as 369,000.

Economists surveyed by Thomson Reuters foresaw a 381,000 pace for January, based on reports that low inventory had been hampering sales in some regions. The sales rate stood 28.9% above the January 2012 estimate of 339,000.

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