Market Close: Munis Show Resilience To Supply; Post Gains

The tax-exempt market ended steady to stronger Thursday as traders said the remainder of the primary deals were well received and activity was heightened.

While trades throughout the day looked stronger, the municipal bond market reads ended flat across the curve.

“We are seeing decent activity on the retail side, especially in kicker bonds,” a trader located in the Southwest region said. “The long par bonds are dying and people would rather buy kicker bonds and zeros.”

This trader added that munis feel like a tale of two markets. “Kickers and zeros feel stronger today, but par bonds on the long end still feel weaker.”

In the morning, traders said munis were following Treasuries higher. “It seems like with the Treasury rally, munis have got a pretty firm bid out there,” a Virginia trader said. “Deals seem to be going well and the secondary seems to be going fine.”

He added that the market feels as much as two basis points stronger out in 10- to 15-year maturities.

In the primary market, JPMorgan priced for institutions $794.2 million of Regents of the University of California general revenue bonds, following a $501.2 million taxable issue Wednesday. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.

Yields ranged from 0.17% with a 2% coupon in 2014 to 3.23% with a 5% coupon in 2039. The bonds are callable at par in 2023.

Morgan Stanley priced $325 million of Oregon’s Tri-County Metropolitan Transportation District payroll tax and grant receipt revenue bonds, rated Aa3 by Moody’s and A-plus by Standard & Poor’s.

Yields ranged from 0.54% with a 3% coupon in 2016 to 1.35% with a 3% coupon in 2019. The bonds are callable one year before their respective maturity dates.

In the competitive market, Bank of America Merrill Lynch won the bid for $268.3 million of Florida State Board of Education public education capital outlay refunding bonds, rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.

Yields ranged from 0.18% with a 4% coupon in 2014 to 3.25% with a 3.125% coupon in 2032. The bonds are callable at par in 2022.

Bank of America Merrill Lynch also won the bid for $174.9 million of Boston general obligation bonds in two pricings, rated Aaa by Moody’s and AA-plus by Standard & Poor’s.

Yields on the first pricing of $150.6 million, ranged from 0.18% with a 4% coupon in 2014 to 3.12% with a 3% coupon in 2033. The bonds are callable at par in 2023.

Yields on the second pricing of $24.3 million of refunding bonds, ranged from 0.17% with a 4% coupon in 2014 to 2.20% with a 4% coupon in 2026. The bonds are callable at par in 2023.

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

Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 and Ohio’s American Municipal Power Inc. 8.084s of 2050 fell three basis points each to 6.85% and 5.08%, respectively.

Yields on New York’s Metropolitan Transportation Authority 5s of 2038 and Lewisville, Texas, Independent School District 5s of 2020 dropped two basis points each to 3.46% and 1.48%, respectively.

Yields on San Francisco Public Utilities Commission 5s of 20206 and Lower Colorado River Authority, Texas, 5s of 2032 fell one basis point each to 2.43% and 3.14%, respectively.

Municipal bond market scales finished flat across the curve Thursday after posting gains throughout the week.

Yields on the Municipal Market Data triple-A GO scale ended steady. The 10-year yield and the 30-year yield finished flat at 1.81% and 2.91%, respectively, for the second session. The two-year closed at 0.31% for the eighth straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also closed steady. The 10-year and the 30-year yield ended the day flat at 1.83% and 2.99%, respectively. The two-year was steady at 0.33% for the third session.

Treasuries were choppy but ended the day stronger. The benchmark 10-year yield and the 30-year yield fell two basis points each to 1.89% and 3.09%, respectively. The two-year was steady at 0.25%.

For the first two months of the year, muni-to-Treasury ratios fell on the short- and intermediate-term as munis outperformed Treasuries and became comparably more expensive.

The five-year muni yield to Treasury yield ratio fell to 100% on Feb. 28 from 110.5% at the beginning of the year. The 10-year ratio fell to 95.8% from 96.7% at the start of the year.

But ratios on the long-end have risen for the first two months of the year as munis underperformed Treasuries and became relatively cheaper. The 30-year ratio rose to 94.2% on Feb. 28 from 93.8% at the beginning of 2013.

Looking at February alone, all ratios have risen as munis underperformed their taxable counterparts. The five-year ratio rose to 100% on Feb. 28 from 89.8% on Feb. 1. The 10-year ratio jumped to 95.8% from 90.5% at the beginning of the month. The 30-year ratio rose to 94.2% at the end of February from 89.1% at the beginning.

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