As municipal bond yields contract further, traders have found value within "off the beaten track" credits in the secondary market.
"Basically anything that's different than what's in the primary are the secondary trades we're looking at," said a trader in New York.
While primary supply has been healthier than in previous weeks with $6 billion of scheduled issuances, the pricing has been expensive enough to force traders to be more creative.
"Little things here and there, that's where the real value is in the market right now," said a trader in New Jersey.
One such "little thing" was the Clark County Nevada Airport System, receiving round lot trades Tuesday for the first time since May 2012. Yields on the airport's subordinate lien revenue bonds 5.75s in 2042 traded at 2.60%, down from 3.77% in May 2012.
The airport's defensive structure of an optional 2020 call feature and a high coupon made the bond "very attractive," the trader in New York said.
Another more esoteric credit trading actively in the secondary market was a Missouri Housing Development Mortgage revenue bond. Yields on the single-family mortgage revenue bonds' 3.8s in 2025 fell to 3% in afternoon trading, from 3.26% in the morning.
"You have to walk through a jungle of 'ordinary' to find a couple of things off the beaten track to get the kinds of yields and investment grades you're going to like," said the trader in New Jersey, noting "ordinary" credits like Puerto Rico, Chicago, and Illinois trade regularly, but are less attractive.
Meanwhile, the Puerto Rico rally managed to "hold in" as traders predicted, with yields on the commonwealth's GO 8s in 2035 at 8.93%, marginally higher than yesterday's yields of 8.81%.
While market participants have attributed the island's rally to the market reeling back from an overreaction to its new restructuring legislation, others were not as positive, calling the yield compression a "dead cat bounce".
"Everyone is just starting to line up," said a trader in New Mexico. "You have the hedge funds on one side trying to support the GO debt and on the other side you have the mutual funds - [OppenheimerFunds Inc.] and Franklin - trying to ring fence the public corporations."
The New York trader agreed that the rally is likely a dead cat bounce, noting the technical of the island's debt situation may justify slightly higher yields and valuations have been largely unclear.
"But cats do have nine lives," he said.
In the primary, the Utah County Hospital revenue bonds priced more expensively than some traders anticipated.
"Utah has the highest rated health care system," a second trader in New York said. "There should [have been] a little extra yield."
The $158.1 million Utah County Hospital revenue health service bonds were priced by Wells Fargo Securities on Tuesday with two May 15, 2045 maturities, one priced at par with a 4% coupon, and the other at a yield of 3.65% with a 5% coupon.
The deal has two sinking funds with two term bonds in 2045, and an optional call at par in 2024. The bonds were rated Aa1 by Moody's Investors Service, and AA-plus by Standard & Poor's.
In the competitive market, JPMorgan Securities won the bid for $310 million of Miami-Dade County, Fla., tax anticipation notes. The note matures in 2015 at par with a 1% coupon. The deal is rated MIG1 by Moody's.
Harris County, Texas, auctioned $225 million of tax anticipation notes on Tuesday. Barclays Capital won a $25 million chunk with an effective rate of 0.07% and a 1% coupon. RBC Capital Markets and Wells Fargo Securities also won $25 million portions of the deal that were also priced at a 0.07% effective rate, with RBC's part carrying a 1% coupon and Wells Fargo's a 2%.
Goldman Sachs and Raymond James & Associates received the two largest $50 million sections. Goldman priced the notes at the same 0.07% effective rate with a 1% coupon, and Raymond James gave them a 0.068% with a 1% coupon.
FTN Financial Capital received $50 million in five $10 million denominations all priced at an 0.07% effective rate and a 1% coupon.
"Texas is not a high tax state so there is more of a national appeal to it," the second New York trader said. "The state's economy is doing fine so there was a lot of demand."
The deal is rated F1-plus by Fitch Ratings.
Bank of America won the bid for $100 million of Boston Water and Sewer Commission revenue bonds. Yields ranged from 0.69% with a 5% coupon in 2017 to 3.85% with 3.625% coupon in 2044.
"Boston has a very strong revenue system," the second New York trader said. "Not sure how much off the triple-A scale the deal is, but it was bought up."
The bonds are callable at par in 2024. The deal is rated Aa1 by Moody's, and AA-plus by both S&P and Fitch.
Munis were mostly unchanged Tuesday from Monday's market close for yields on bonds maturing in one to two-years and five to 29-years. Yields on bonds maturing in three to four-years fell one basis point, according to the Municipal Market Data's triple-A scale. According to the Municipal Market Advisor's 5% triple-A scale, the 30-year yields and the two-year notes were unchanged at 3.42% and 0.31% from Monday's market close. The 10-year benchmark fell one basis point to 2.23%.
Treasuries were mostly unchanged Tuesday from Monday's market close, with 30-year yields and the 10-year benchmark remaining at 3.26% and 2.48%, respectively. The two-year note falling one basis point to 0.49%.
