Market Post: Munis Priced Well Despite Weaker Treasuries

FEB 21, 2012 12:56pm ET
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NEW YORK – Tax-exempt bonds in the new issue market are being priced well despite a rally in the stock market and weaker Treasuries, traders said.

“Deals are going OK,” a Los Angeles trader said. “We are taking indication periods for our deals and the long bonds are off and Municipal Market Data is cutting prices, but we are seeing very good interest.”

He added that in California, most traders are looking ahead to the big general obligation deal expected to price next week. “We are getting these deals done and see if supply forces yields up. Stocks are up and there are some factors that tend to push yields up but deals are going well.”

Munis were weaker Tuesday early afternoon, according to the MMD scale. Yields inside four years were steady while yields between the five- and eight-year maturities rose up to two basis points. Outside nine years, yields jumped between one and three basis points.

On Friday, the two-year yield was steady at 0.26%, its record low as recorded by MMD on Thursday. The previous record of 0.29% was set Feb. 7. The 10-year yield and the 30-year yield rose to 1.83% and 3.23%, respectively.

Treasuries were much weaker as the Dow Jones Industrial Average briefly crossed the 13,000 mark for the first time since May 2008. The two-year yield rose two basis points to 0.32%. The benchmark 10-year yield and the 30-year yield jumped six basis points each to 2.07% and 3.22%.

In the negotiated market, Morgan Stanley priced for retail $800 million of New York City general obligation bonds, rated Aa2 by Moody’s Investors Service, and AA by Standard & Poor’s and Fitch Ratings. Prices were not available by press time.

In the competitive market, JPMorgan won the bid for $49 million of Boulder, Colo., revenue bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s. Maturities ranged from 2012 to 2031. Prices were not available by press time.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening from last week.

A dealer bought from a customer Tennessee 5s of 2022 at 1.92%, four basis points higher than where they traded Friday.

Bonds from an interdealer trade of Dormitory Authority of the State of New York 5s of 2027 yielded 2.92%, four basis points higher than where they traded last Friday.

Bonds from another interdealer trade of Puerto Rico Aqueduct and Sewer Authority 6s of 2047 yielded 5.08%, three basis points higher than where they traded Friday.

A dealer sold to a customer San Antonio, Texas, 5s of 2023 at 2.19%, one basis point higher than where they traded Friday.

Over the course of the past week, muni-to-Treasury ratios fell across the curve as munis outperformed and became more expensive. The five-year ratio fell to 75.6% on Friday, down from 82.5% the week prior. The 10-year muni-to-Treasury ratio dropped to 91% from 93.4% the week prior. The 30-year ratio fell to 102.2% from 104.8% last Friday.

The 10- to 30-year slope of the curve also fell over the course of the week, falling to 140 basis points from 143 basis points the week prior.

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