With pressure on safe-haven assets and the Dow Jones Industrial Average topping its all-time high, the municipal bond market ignored supply and demand factors and ended the day weaker despite a light primary calendar.
Tax-exempt traders said the market ended three to four basis points lower with high-grade yields making the most moves ahead of the $700 million triple-A rated Maryland general obligation deal expected to hit the market Wednesday.
“The calendar is not big this week but there is a focus on the primary today and the Maryland deal Wednesday,” a New York trader said. “That’s causing high-grade spreads to widen.”
And while attention leaned towards the primary, secondary trading was muted at the start of the session, but picked up as the day progressed. “There are a fair amount of trades going through,” this trader said. “It’s just weak.”
A New Jersey trader classified the secondary market as a “struggle.”
“The primary has been the focus of the market so secondary volume has been light,” the New Jersey trader said. “We are getting some trading done today but it’s sporadic and a little softer.”
While the bulk of the week’s new issuance in the primary market is yet to come, Texas’ Lower Colorado River Authority competitively sold $308 million of revenue bonds to Citi. Pricing details were not available by press time. The credit is rated A2 by Moody’s Investors Service, A by Standard & Poor’s, and A-plus by Fitch Ratings.
In the negotiated market, Citi priced for retail $230 million of Connecticut GOs, rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch. Kroll Bond Ratings also rates the debt AA.
Yields ranged from 1.07% with a 2% coupon in 2019 to 3.30% priced at par and 3.07% with a 4% coupon in a split 2033 maturity. The bonds are callable at par in 2023. Institutional pricing is expected Wednesday.
Also, JPMorgan priced $224.1 million of Fulton County, Ga., water and sewerage revenue refunding bonds, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields ranged from 2.45% with a 5% coupon in 2025 to 3.38% with a 4% coupon in 2035. The bonds are callable at par in 2023.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Chester County, Pa., 5s of 2030 plunged five basis points to 2.44% while Illinois’ Railsplitter Tobacco Settlement Authority 6s of 2028 fell three basis points to 3.03%. Yields on New York’s Metropolitan Transportation Authority 5s of 2041 fell one basis point to 3.52%.
Other trades were weaker. Yields on Honolulu 1.259s of 2017 jumped three basis points to 0.89% while Miami-Dade County, Fla., 5s of 2022 increased two basis points to 2.54%. Yields on Maryland 5s of 2019 rose one basis point to 1.04%.
And despite and overall weaker muni market, BABs traded stronger, hinting that fears over the sequestration may be overblown. Trade data compiled by Markit from Feb. 27 through Tuesday showed firming.
Yields on California taxable highway GOs maturing in 2039 fell eight basis points to 3.87% from 3.95% on Monday. The spread to the 30-year Treasury tightened to 79 basis points from 87 basis points.
Yields on Maryland taxable GOs maturing in 2035 fell to 5.70% on Tuesday from 5.73% on Friday. The spread to the 30-year Treasury tightened to 262 basis points from 265 basis points.
Yields on New Jersey taxable turnpike revenue bonds maturing in 2040 fell to 4.425% on Monday from 4.461% on Feb. 27. The spread to the 30-year Treasury tightened to 134 basis points from 138 basis points.
Some analysts said while the sequestration is a credit negative to state and local governments, federal aid to states only comprises 0.35% of total state spending, helping to mitigate many of the negative effects.
“Many of the segments of the municipal bond market, such as revenue bonds where debt repayment is dependent upon specific services or functions will not be impacted at all,” wrote Anthony Valeri, market strategist at LPL Financial. “Separately, the reduced spending, and scope for more state and local government job cuts, will be a negative for economic growth and may indirectly support muni bond prices.”
And Detroit, reeling from news that Michigan would appoint an emergency manager for the city, traded stronger Friday after that news. Yields on Detroit Water Supply System 5.75s of 2037 fell eight basis points to 3.81% on Friday from 3.89% on Thursday, according to Markit. Analysts said similar bonds for other municipalities in Michigan tightened only one to two basis points.
Overall, municipal bond market scales ended weaker Tuesday for the second session this week.
Yields on the Municipal Market Data triple-A GO scale ended as much as four basis points higher. The 10-year yield jumped four basis points to 1.83% while the 30-year yield increased three basis points to 2.94%. The two-year closed at 0.31% for the 11th straight session.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale closed as much as three basis points higher. The 10-year and the 30-year yield jumped three basis points each to 1.85% and 3.01%, respectively. The two-year was steady at 0.33% for the sixth session.
Treasuries ended weaker as stocks jumped. The benchmark 10-year yield jumped three basis points to 1.90% while the 30-year yield rose one basis point to 3.10%. The two-year was steady at 0.25%.
