The municipal market on Tuesday saw robust downward yield moves in a session traders described as lackluster in activity.
The market started the morning on a strong note as momentum from the preceding
“Unfortunately, there’s not much activity going on now,” a trader in Los Angeles said. “It seemed like there was kind of a rally; the bid side is extremely strong. It’s holding up as it has been for the past several weeks. Overall, the market has been strong. It’s just continued strength; it’s not stronger than it was before.”
This week, $7.80 billion of bonds is expected to reach the primary, compared with last week’s revised $4.20 billion.
More retail orders reached the market Tuesday, including the second day of orders 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 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.
The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings. In the deal’s second series, $222.6 million, debt maturing between 2021 and 2023 was lowered by one basis point for the second day of the retail order period.
Siebert Brandford Shank & Co. also priced $100 million of New York City converted bonds, part of the city’s effort to convert $248 million of variable-rate demand bonds to step-coupon floating-rate notes.
They are scheduled to mature on Aug. 1, 2025, with a step-up date of April 2, 2018. The credits are priced at par, with a coupon at the SIFMA swap index plus 55 basis points.
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.
Citi priced $303.1 million of Ventura County, Calif., Public Finance Authority lease revenue bonds. The bonds are rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields ranged from 0.35% with a 3.00% coupon in 2014 to 4.02% with a 4.00% coupon and 3.67% with a 5.00% coupon in a split maturity in 2043.
Debt maturing in 2013 was offered in a sealed bid. The bonds are callable at par in 2022.
“So far, there’s been plenty of cash enough to eat up all these new issues that have been coming,” the trader in Los Angeles said “It seems as though everyone has been sitting on cash. Now they have a chance to spend it.”
Trades in the secondary market, compiled by data provider Markit, showed solid strengthening.
In morning trading, the 10-year sector of the municipal bond yield curve lured buyers, a trader in New York said. Thanks to a rally in Treasuries, coupled with muni underperformance Monday, 10-year muni ratios to Treasuries climbed to 100% for the first time since the end of December.
“Munis didn’t move yesterday when Treasuries had a nice rally, so ratios got inflated,” the trader said. “So, people are jumping into munis right around the 10-year sector. And it sounds like there are some crossover buyers that have come in because rates are attractive versus Treasuries at this point this morning.”
By Tuesday’s close, muni ratios to Treasuries at the 10-year tumbled once again into rich territory at 97%.
Muni yields rallied across much of the curve Tuesday, according to the Municipal Market Data triple-A GO scale. While the front end of the curve remained steady, yields of credits maturing in three and four years fell two basis points. And those maturing between five and 14 years dropped between four and six basis points. Beyond 14 years, yields were one to three basis points lower.
At Tuesday’s close, the 10-year triple-A plunged six basis points to 1.83% while the 30-year ended the day two basis points lower at 2.92%. The two-year closed at 0.31% for the sixth straight session.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale closed Tuesday firmer across the curve. The 10-year yield plunged six basis points to 1.84%. The 30-year yield closed at 3.00%, a two-basis-point drop. The two-year skipped down one basis point to 0.33%.
Around noon Tuesday, Treasury yields beyond the front end of the curve strengthened. But by the day’s close, they almost pushed back up to their opening levels. The benchmark 10-year yield closed one basis point lower to 1.88%. The 30-year yield ended the day flat at 3.08%, as did the two-year yield, which closed at 0.25%.
