Munis Stronger Than Expected On Week

The tax-exempt market gained strength from wild swings in equities and gold prices this week as deals were well received and bonds subsequently traded up in the secondary.

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“Overall everything was very heavy,” said Greg Gurevich, chief executive of Maritime Capital Partners. “We do continue to see outflows from the muni bond market. But over past several weeks munis have been in line with Treasury performance. We expected underperformance relative to Treasuries due to people selling bonds for tax reasons but we didn’t see as much as we saw last year and the year before.”

He added there was volatility earlier in the week with swings in the equity markets, a big drop in gold, and Treasury volatility, but that did not translate over into the muni market. “Overall there was strong demand and people continue to put money to work.”

In the primary market, New Jersey headlined this week’s calendar with $877.5 million of New Jersey Transportation Trust Fund Authority transportation system bonds priced by Goldman, Sachs & Co. The bonds are rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings.

The first tranche — $539.3 million — was tax-exempt. Yields ranged from 0.38% with 3% and 5% coupons in a split 2014 maturity to 2.60% with a 5% coupon in 2024. Bonds maturing in 2013 were offered via sealed bid. Yields were lowered as much as three basis points from preliminary pricing.

The second — $338.2 million — was taxable. Bonds were priced at par with a 1.087% coupon in 2016 and a 1.758% coupon in 2018. The credits yielded 75 basis points in 2016 and 105 basis points in 2018 above the comparable Treasury yield.

Deals were bumped in price, Gurevich said. “There were big bumps in Illinois and New Jersey went well,” he said. “Part of this is people are continuing to put money to work and as long as you don’t see a spike in new issuance, that will continue.”

Still, if outflows continue, there could be a spike in prices, Gurevich said.

In the secondary market, activity picked up as the week progressed. “There was a big up Tuesday, a spike Wednesday, and Thursday was active but we are already starting to see a slowdown. Dealers were getting rid of inventory. Dealers didn’t expect the market to be as strong this week so primary came cheap on Monday which led to a sharp gain in trading volume Tuesday and Wednesday.”

Trades reported by the Municipal Securities Rulemaking Board showed higher levels of activity as the week progressed.

On Monday, there were 37,336 trades, down from the 30-day average of 40,443 trades. Par value traded was $9.471 billion, down from the 30-day average of $11.699 billion.

By Tuesday, activity started to climb. There were 40,720 trades, above the 30-day average of 40,502 trades. Par value traded came in at $12.142 billion, above the 30-day average of $11.767 billion.

On Wednesday, there were 39,854 trades, down slightly from the 30-day average of 40,365 trades. Par value traded came in at a whopping $16.620 billion, up from the 30-day average of $12.019 billion.

On Thursday, there were 38,911 trades, down from the 30-day average of 40,201 trades. Par value traded was $13.738 billion, up from the 30-day average of $12.106 billion.

In retail trades of under 100 bonds — or $100,000 par value — secondary activity was lower than the previous week, according to data from BondDesk Group.

There were 58,082 buy trades for the week ending April 17 compared to the previous week’s 59,474 buy trades. The number of buy trades was the second lowest in the past five weeks.

Sell trades fell to 36,099 versus the previous week’s 37,674 trades. The number of sell trades was the third highest in the previous five weeks.

The ratio of buy trades to sell trades fell to 1.6, down from the previous five week’s 1.7 and 1.8.

Dollar volume traded also fell for the week ending April 17. There were $1.607 billion buy trades for the week compared to the $1.639 billion buy trades for the week before. Sell trades fell to $1.053 billion compared to the previous week’s $1.089 billion sell trades.

The ratio of buy trades to sell trades in dollar amount fell to 1.5 compared to the previous five week’s 1.7 and 1.6.

Through Thursday, yields on the 10-year MMD triple-A GO scale fell two basis points to 1.70% and the 30-year yield dropped five basis points to 2.89%. The two-year was steady for the week at 0.29%.

Yields on the 10-year and 30-year Municipal Market Advisors 5% coupon triple-A benchmark scale fell three basis points each for the week to 1.76% and 3.02%, respectively. The two-year was steady for the week at 0.32%.

Overall for the week, Treasuries were only little changed. The benchmark 10-year yield fell one basis point to 1.71% and the 30-year yield dropped four basis points for the week to 2.88%. The two-year was steady at 0.23%.

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