The tax-exempt market looked to the high-grade competitive market for direction Tuesday as Louisiana priced $300 million of general obligation bonds in the biggest deal of the day.
Traders said the issue was well received with only two maturities left with balances in a day that was weaker overall.
The Louisiana bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Raymond James bought $169.3 million of taxable bonds. Yields ranged from 0.24% with a 0.24% coupon in 2014 to 2.88% priced at par in 2026. Spreads ranged from 18 basis points to 110 basis points above the comparable Treasury yield.
Bank of America Merrill Lynch won the bid for $130.7 million of tax-exempts with a true interest cost of 3.25%. Yields ranged from 0.40% with a 2% coupon in 2014 to 3.07% with a 4% coupon in 2033. The bonds are callable at par in 2023.
By afternoon, traders said the whole bond issue was sold, except $15 million in 2027 and $7 million in 2028 bonds.
“They are not rewarding you much in terms of yield as you go longer, but they are rewarding you in terms of spread” versus the MMD scale, a New York trader said. Yields were about 50 basis points off the MMD scale for 4% coupons with the longest maturities, while the 2025 maturity was about 30 basis points off and the 2026 maturity was plus 40 basis points, he said. This trader added that going from 2029 to 2030, the yield increased to 2.91% from 2.85%, while moving from 2028 to 2029, the yield jumped to 2.85% from 2.67%. “You don’t get as much bang for your buck from 2029 to 2030 as you would from 2028 to 2029. That seems to be the sweet spot.”
This major deal came in quiet, weaker market. One trader described the secondary as apathetic. “No one cares about anything right now,” a New Jersey trader said. “No one wants to buy or sell. The market is in limbo.”
Trades were a touch weaker than on Monday, he added.
Other traders said customer bid lists surfaced in the morning, pushing prices lower. “There is a little selling pressure,” a second New York trader said. “Ratios are a little tighter and maybe there is a little selling in sympathy there and people trying to cheapen up the market for the new deals. But overall it’s a very quiet week.”
Muni-to-Treasury ratios have become rich and fell below 100% for the longest maturities. Ratios outside 10 years also fell below the 90-day average.
“General market paper was lagging the Treasury selloff that closed out last week,” said Dan Toboja, vice president at Ziegler Capital Markets. “Ratios for munis opened this week inside 100% and bidding was quiet but slightly weaker to open.”
He added that while there is some upward pressure on yields in the short-term, trading in fixed income will be range-bound until the Fed’s quantitative easing program begins to unwind.
And as the secondary traded weaker, the primary was very well received. One trader said he underwrote $30 million of bonds and some maturities were up to eight times oversubscribed. “We have these bonds priced 40 basis points through some secondary items that aren’t moving,” this trader said. “Clearly it’s a fragmented market.”
In other primary market deals, Loop Capital Markets priced $164.4 million of Houston Combined Utility System first lien revenue and refunding bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s.
Yields ranged from 0.28% with a 0.5% coupon in 2014 to 3.33% with a 5% coupon in 2043. The bonds are callable at par in 2023.
Morgan Stanley priced and repriced $149.1 million of Illinois Finance Authority revenue bonds for the University of Chicago, rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
The bonds yielded 0.43% with a 4% coupon in 2015, 3.02% with a 5% coupon in 2034, 4.10% with a 4% coupon in 2049, and 3.50% with a 5.25% coupon in 2052. The bonds are callable at par in 2023. Yields on the 2015 maturity were lowered three basis points in repricing while yields on the 2052 maturity were increased 10 basis points.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Midlothian, Texas, Independent School District 4s of 2036 increased three basis points to 3.18% and New York City Transitional Finance Authority 5s of 2024 rose two basis points to 2.18%.
Yields on California 5s of 2022 and Minnesota 5s of 2023 rose two basis points each to 2.13% and 1.47%, respectively.
Other trades were stronger. Yields on Middletown, Conn., 4s of 2021 and Baltimore County, Md., 5s of 2019 slid two basis points each to 1.60% and 1.06%, respectively.
Yields on Collier County, Fla., 4s of 2025 dropped two basis points to 2.91%.
Municipal bond scales ended up to two basis points weaker Tuesday after yield rose as much as six basis points Monday.
Yields on the Municipal Market Data triple-A GO scale finished as much as two basis points higher. The 10-year and 30-year yields increased two basis points each to 1.75% and 2.89%, respectively. The two-year finished flat at 0.29% for the 23rd session.
Yields on the Municipal Market Advisors 5% scale ended also ended up to two basis points higher. The 10-year yield rose two basis points to 1.81% and the 30-year yield increased one basis point to 3.02%. The two-year finished unchanged at 0.32% for the 23rd session.
Treasuries posted losses Tuesday, extending its losing streak from Friday. The benchmark 10-year and 30-year yields increased two basis points each to 1.79% and 3.00%, respectively. The two-year also rose two basis points to 0.24%.
