Market Close: Munis Open Week With Stronger Bias, Attractive Offerings

The tax-exempt market ended Tax Day on a quiet note as traders said there were a few attractive opportunities in the market, though it was far from a grab-fest.

In the primary market, traders focused on the over $800 million New Jersey deal that priced for retail.

“The retail order period is out but we will have a better feel how it goes tomorrow,” a New York trader said.

Goldman, Sachs & Co. priced for retail $875 million of taxable and tax-exempt transportation system bonds for the New Jersey Transportation Trust Fund Authority. About $540 million is tax-exempt and $335 million is taxable. Institutional pricing is expected Tuesday.

Outside the New Jersey deal, the market continued to be quiet. “It’s pretty quiet today,” a New York trader said. “There is some stuff trading but no one is grabbing for bonds. There is not a ton out for bid and there’s no follow through.”

Still, he added there was follow through on California bonds that priced last week. The 5s of 2029 traded five basis points lower today than Friday.

Other traders agreed there were not a lot of bonds out for bid. “It’s slow here,” an Ohio trader said. “It’s not a grab=fest but I feel fair, attractive offerings are moving.”

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

Yields on California’s Golden State Tobacco Securitization Corp. 4.5s of 2027 dropped three basis points to 4.72%. Yields on Ohio 5s of 2020 and California 5s of 2020 slid two basis points each to 1.41% and 1.65%, respectively.

Yields on Washington 5s of 2025 and Harris County, Texas, 5s of 2023 fell two basis points each to 2.26% and 1.79%, respectively. Yields on Grand Prairie, Texas, Water and Wastewater System 3s of 2019 fell one basis point to 1.12%.

Municipal bond scales ended stronger Monday after a stronger session Friday.

Yields on the Municipal Market Data triple-A GO scale were as much as two basis points lower. The 30-year yield fell two basis points to 2.92%. The 10-year yield finished flat at 1.72% for the second session and the two-year closed steady at 0.29% for the seventh session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended as much as one basis point lower. The 10-year yield fell one basis point to 1.78%. The 30-year was flat at 3.05% for the second session and the two-year was flat at 0.32% for the seventh session.

Treasuries posted gains Monday. The benchmark 10-year yield slid three basis points to 1.69% and the 30-year yield dropped four basis points to 2.88%. The two-year yield fell one basis point to 0.22%.

Looking to the rest of this week, $7.22 billion is expected to be priced, down slightly from last week’s revised $7.51 billion. On the negotiated side, $6.46 billion should be issued, up from last week’s revised $5.69 billion. In competitive deals, $760 million is expected to be auctioned, down from last week’s revised $1.82 billion.

Over the first half of April, muni to Treasury ratios have fallen on the short- and intermediate-term as munis outperformed Treasuries and became relatively more expensive. Still, ratios are all still over 100%.

The five-year ratio fell to 107.2% on April 15 from 109.2% on April 1. The 10-year ratio dropped to 100.6% from 102.7% at the beginning of the month.

Ratios on the long-end rose over the course of the month as munis underperformed Treasuries and became relatively cheaper. The 30-year ratio rose to 101.4% on April 15 from 100.3% at the beginning of April.

Since the beginning of the year, ratios tell a difference story. Ratios on the short-end fell as munis outperformed Treasuries and became relatively more expensive. The five-year ratio dropped to 107.2% from 110.5% at the beginning of the year.

Ratios on the intermediate- and long-end of the curve rose as munis underperformed Treasuries and became cheaper. The 10-year ratio jumped to 100.6% from 96.7% on Jan. 2. The 30-year ratio also increased to 101.4% from 93.8% at the beginning of the year.

And while the muni market has seen an uptick in volume and six weeks of consecutive outflows, market participants say the selloff has been muted.

“Mutual fund outflows and new issue supply in the form of a large California general obligation bond issue haven’t rattled the municipal bond market,” said J.R. Rieger, vice president of fixed income at Standard & Poor’s Dow Jones Indices, referring to the $2.7 billion California GO deal last week.

He continued the S&P National AMT-Free Municipal Bond index is up 0.96% year-to-date and is up 0.61% so far in April. The California GO index is also up 0.56% in April.

New Jersey, which is headlining the largest deals this week, has also posted decent returns. For 2013, the S&P Municipal Bond New Jersey Index rose 1.33% and is up 6.61% over the past 12 months.

“The belly of the curve, of the five- to 10-year maturity range, seems to be catching the most attention,” Rieger said, adding the weighted average yield of bonds in the five-year S&P AMT-Free Muni Series 2018 fell nine basis points and the 10-year bonds in the 2023 index dropped 19 basis points.

The high-yield index has also clocked in stellar performance for the year as the S&P Municipal Bond High Yield Index is up over 14% over the past 12 months and returned 2.68% return year-to-date. On the other hand, investment grade bonds didn’t do as well, returning over 5% over the past 12 months but only 0.65% year-to-date.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER