The tax-exempt market saw a bifurcation this week with demand in the primary and less enthusiastic trading in the secondary.
"The primary was very well received," though volume was less than it has been in previous weeks, said Kevin Strom, head of capital markets at Ziegler Capital Markets.
"There have been reasonable balances left on deals and that is the footprint we have been dealing with over the last few markets," Strom said. But as rates have ticked higher over the past week, deals are getting better reception. "As the market adjusted itself to the downside, there is better reception in the market. There are still balances but not like we have seen over the past few months."
In the secondary market, activity has slowed down in the last few weeks, as muni yields haven't jumped as much as Treasury yields. "Munis benefitted in that they didn't move in lockstep with Treasuries so they didn't have as big a hit," Strom said.
Muni-to-Treasury ratios for all maturities were previously above 100%. As munis have outperformed, the ratios have moved down to the mid 90% range. "The downdraft was modest in munis and greater in Treasuries, so people take their foot off the throttle and see where to find the best relative value in the marketplace," Strom said. "The secondary suffered more than the primary in terms of where to spend money."
The week's volume of $5.24 billion in new deals included several issues of taxable debt from Illinois.
One of the biggest was $300 million sales tax revenue Build Illinois Bonds bought by Wells Fargo. The competitive auction had 11 bidders and the deal was sold at a true interest cost of 3.286%. The cover bid was 3.298%.
Southwest Securities priced $22.1 million of tax allocation refunding bonds for the Successor Agency to the Upland Community Redevelopment Agency even as Moody's Investors Service recently announced it may discontinue rating the bonds of successor agencies to California's 427 redevelopment agencies.
Yields ranged from 0.60% with a 2% coupon in 2013 to 2.75% with a 5% coupon in 2023. Yields were lowered two and three basis points on 2017 to 2019 maturities from preliminary pricing.
The secondary didn't see the same demand as the primary. On Monday, there were 35,648 trades, down from the 30-day average of 39,237 trades, according to the Municipal Securities Rulemaking Board. Par value traded was $7.434 billion, down from the 30-day average of $12.109 billion.
On Tuesday there were 39,173 trades, down from the 30-day average of 39,248 trades. Par value traded came in under the 30-day average of $12.158 billion at $9.372 billion.
Wednesday was the most actively traded session of the week with 41,677 trades, above the 30-day average of 39,268 trades. Par value traded came in above the 30-day average of $12.217 billion at $12.887 billion.
Trading on Thursday slipped to 39,999, just above the 39,206 30-day average. Par value fell to $11.579 billion, down from the 30-day average of $12.156 billion.
In retail trades of under 100 bonds, or $100,000 in par value, there were fewer buy trades this week than last week and more sell trades this week than last week, according to BondDesk Group.
There were 58,296 buy trades during the week ending May 8, down from 59,577 buy trades the week before. Sell trades were higher at 34,202, up from last week's 33,501. The ratio of buy trades to sell trades slipped to 1.7 from 1.8 the week before.
Dollar volume traded also showed fewer buy trades and more sell trades. There were $1.601 billion buy trades, fewer than last week's $1.614 billion. Sell trades were higher at $956 million up from the previous week's $947 million. Par value of buy to sell trades held steady at 1.7.
Through Thursday afternoon, the 10-year Municipal Market Data yield jumped seven basis points to 1.75% and the 30-year yield increased five basis points to 2.87%. The two-year yield fell one basis point to 0.28%.
The 10-year Municipal Market Advisors yield increased four basis points for the week through Thursday to 1.80% and the 30-year yield rose three basis points to 3.01%. The two-year yield was steady for the week at 0.32%.
