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Market Post: Primary Gets Busy; Increased Activity in Secondary

JUN 12, 2012 2:38pm ET
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NEW YORK – The tax-exempt market continued to weaken Tuesday afternoon although traders noted secondary activity picked up steam from Monday.

“Munis are weaker, but secondary activity is busier,” a New York trader said, adding that while most of the week’s largest deals were being priced in the primary market Tuesday, activity was spilling over into secondary trading.

Indeed, muni yields rose, according to the Municipal Market Data scale. Yields inside three years were steady while the four- and five-year yields rose one basis point. Outside six years, yields jumped two basis points.

On Monday, the 10-year yield closed steady at 1.90% for the third consecutive trading session while the 30-year closed flat at 3.18% for the second session. The two-year was steady at 0.32% for the seventh straight session.

Treasuries were weaker Tuesday afternoon. The benchmark 10-year yield jumped three basis points to 1.63%. The two-year yield and the 30-year yield each rose one basis point to 0.29% and 2.73%.

In the primary market, part of the biggest deal of the week was priced for institutions. The Michigan Finance Authority issued $2.68 billion of unemployment obligatory assessment revenue bonds in two series. The bonds in both are rated triple-A by the major rating agencies.

Citi priced the first series of $1.47 billion for institutions, following a retail order period Monday.

Yields ranged from 0.20% with a 2% coupon in 2013 to 1.63% with 3%, 4%, and 5% coupons and 1.68% with a 5% coupon in a split 2019 maturity. Portions of credits maturing in 2013 were offered via sealed bid. Yields were increased as much as five basis points on certain maturities from the retail order period Monday.

Bank of America Merrill Lynch priced the second series of $1.21 billion for institutions, following a retail order period Monday.

The bonds yielded 1.87% and 1.92% with a 5% coupon in a split 2020 maturity to 1.62% and 1.20% with a 5% coupon in a split 2023 maturity. Yields were lowered between five and 15 basis points from retail pricing Monday.

Credits maturing in 2020 are callable at par in 2019, bonds maturing in 2021 are callable at par in 2018 and 2019, credits maturing in 2022 are callable at par in 2016 and 2018, and bonds maturing in 2023 are callable at par in 2014 and 2016.

Goldman, Sachs & Co. priced for retail $1.8 billion of Dormitory Authority of the State of New York general-purpose New York personal income tax revenue refunding bonds. The bonds are rated AAA by Standard & Poor’s and AA by Fitch Ratings.

Yields ranged from 1.02% with 1.5% and 5% coupons in a split 2017 maturity to 3.60% with a 4% coupon in 2033. Credits maturing in 2025, 2026, and between 2028 and 2030 were not offered for retail. The bonds are callable at par in 2022.

Wells Fargo Securities priced for institutions $523.7 million of Connecticut general obligation bonds, following a retail order period Monday. The credit is rated Aa3 by Moody’s and AA by Standard & Poor’s, Fitch, and Kroll Bond Ratings.

Yields ranged from 0.28% with a 3% coupon in 2013 to 2.74% with 2.5% and 5% coupons in a split 2025 maturity. The bonds are callable at par in 2022. Yields were raised between three and seven basis points from retail pricing Monday.

In the competitive market, Los Angeles Unified School District auctioned $600 million of short-term notes, rated M1G-1 by Moody’s and SP-1-plus by Standard & Poor’s.

JPMorgan won the bid for $335 million. The notes had a 2.5% coupon and were not formally re-offered. Goldman, Sachs & Co. won the bid for $100 million. The notes had a 1% coupon and were not formally re-offered. Bank of America Merrill Lynch and RBC Capital Markets each won a bid for $50 million with 1.5% and 1% coupons, and were not formally re-offered. Barclays won the bid for $40 million with a 1% coupon, the notes were not re-offered. Citi won $25 million with a 2% coupon, the notes were not re-offered.

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