Market Post: Glut of Large Deals, Off Treasuries Lead to Cheaper Yields

NEW YORK — Tax-exempt yields in the belly of the curve are running about five to 10 basis points higher Tuesday as a slew of large deals and lighter Treasury yields give the market a weaker direction.

But yields at the short end continue to mostly hold their levels, a trader in Pennsylvania said.

“With Treasuries being off and there being a pretty large primary calendar today, we’re probably off a good five basis points at least out at the 10- to 15-year range,” he said. “There’s a lot of size in that 10- to 15-year range, and they haven’t had as good an order flow as they may have suspected.”

A lot of deals are getting jammed in today and Wednesday because of the three-day weekend, he added. What’s more, there hasn’t been much secondary market activity, either, he added, which is indicative of the weakness.

“We don’t always move in lockstep with [Treasuries], but it doesn’t help, either,” the trader said.

Tax-exempt yields crossed the afternoon weaker, according to the Municipal Market Data scale. Yields out to eight years are flat to three basis points higher. Yields nine years and beyond are up two to four basis points.

The benchmark 10-year yield and the 30-year yield closed Monday steady at 1.78% and 3.09%, respectively. The two-year yield remained at 0.31% for the 24th consecutive trading session.

Like their muni cousins, Treasury yields crossed into the afternoon higher. The benchmark 10-year Treasury yield had risen five basis points to 1.80%.

The 30-year yield, which moved little through Monday’s session, has jumped eight basis points to 2.89%. The two-year yield has ticked up one basis point to 0.31%.

Although traders could view this week as a holiday-shortened one, since an early close is recommended Friday, the industry anticipates a decent uptick in the primary. Muni volume estimates hold that $9.19 billion will reach the market, compared with $6.83 billion that arrived last week.

Yields were up to 10 basis points higher in the second day of the retail order period for the week’s biggest deal.

Bank of America Merrill Lynch continued taking retail orders for $800 million of New York City general obligation bonds in two series. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.

Yields for the first series, $49.4 million, ranged from 0.60% with a 2.00% coupon in 2014 to 2.60% with a 3.00% coupon in 2024. Credits maturing in 2012 and 2013 were offered in a sealed bid. The bonds are callable at par in 2022.

Yields for the second series, $750.6 million, ranged from 0.60% with coupons of 4.00% and 5.00% in a split maturity in 2014 to 3.17% with a 4.00% coupon in 2030. Credits maturing in 2013 were offered in a sealed bid. Those maturing in 2023 through 2027, 2029, and 2031 and 2032 were not offered to retail. The bonds are callable at par in 2022.

But the yields for both series were raised by 10 basis points for two-year and five-year maturities. And they were pushed up five basis points for those credits maturing at the 10-year mark.

The week’s two largest competitive deals found bidders in the day’s session. Wells Fargo Securities won $571.5 million of San Francisco Public Utilities Commission water revenue and refunding bonds. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.

Yields ranged from 3.24% with a 5.00% coupon in 2031 to 3.75% with a 5.00% coupon in 2043. The bonds are callable at par in 2022.

Also, Bank of America Merrill Lynch won $350 million of Massachusetts general obligation bonds. The bonds are rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Yields ranged from 2.30% with a 5.00% coupon in 2024 to 3.85% with a 4.00% coupon in 2042. Credits maturing in 2023 were sold but not available. The bonds are callable at par in 2020.

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