Bids for munis in the secondary market surged Tuesday as investors looked for safe places to park funds amid heightened international tension..
With the 30-year treasury at its lowest level of 2014 and increasing volatility in equities, retail investors threw bids into the municipal market Tuesday, hoping for a stable investment, a New York based trader said.
"People were just looking for safe things to buy," the trader said. "You're seeing a lot of retail going after big-name GOs."
The bids probably came from municipal buyers playing the volatility and sell-off in equities, the New York trader said. The VIX, an index that measures volatility in the S&P 500, rose 5.73% on Tuesday, climbing throughout the day, after the U.S. announced tighter sanctions on Russia in the energy, arms and finance sectors.
The uncertainty strengthened the municipal market, with yields for the 10-year and the 30-year falling by two basis points to 2.17% and by one basis point to 3.37% respectively, according to Municipal Market Advisors' data. The two year held steady at 0.31%.
Meanwhile, Treasury yields were mixed on Tuesday with the two-year note rising by five basis points to 0.55%. The 10-year strengthened by one basis point to 2.46% and the 30-year by one basis point to 3.23%.
The outperformance by municipals helped secondary trading strengthen across various large issuers. Yields on the commonwealth of Pennsylvania's general obligation 5s in 2022 fell to 2.25% from 2.28%, while yields fell less dramatically on the state of California's general purpose 5s in 2043, moving to 3.65% from 3.66%. Massachusetts yields also tightened, with yields on the state GO 5s in 2041 moving from 3.27% from 3.28%.
"[On Tuesday] people weren't interested in credits with a back story," the New York trader said. "They're interested in 'plain vanilla' names, A rated, not going for the cheaper stuff."
While the bids mostly came from retail, the commotion was enough for a North Carolina based trader to call the secondary "one of the most active days in a while."
"When Treasuries firm up like they [did on Tuesday], it's forcing people to enter the market reluctantly," the North Carolina trader said.
The primary market also benefited from the municipals' outperformance of Treasuries. In one of the few negotiated deals of the day, the McLeod Regional Medical Center issued $61.175 million through Florence County, South Carolina on Tuesday.
The deal was "wildly oversubscribed," according to a Virginia based trader. The issuance was serialized with yields ranging from 0.44% with a 2.0% coupon in 2016, to 3.49% with a 5% coupon in 2034, according to data provided by Ipero.
The deal benefited from its timing in the market, traders said. This week's primary calendar is relatively light, with just $4.2 billion scheduled to price, coupled with significant inflows coming into the market, as previously reported.
The lead manager on the deal was JPMorgan and the financial advisor was Kaufman Hall. McLeod Regional is rated AA-minus by Standard & Poor's.
The healthcare deal was one of few in its sector so far in 2014. Hospital bond issuance through mid-March totaled less than $2.2 billion, nearly 50% off the pace of a year earlier, according to research provided by Wells Fargo Securities. While activity has picked up in the healthcare primary market through May and June, overall issuance is still below its year-over-year mark, according to Wells Fargo Securities.
Also in the negotiated market, the state of Hawaii issued $163 million of highway revenue bonds. The debt was serialized, with yields ranging from 0.25% with a 3.0% coupon in 2015, to 3.22% with a 5% coupon in 2034.
The bonds earned ratings of Aa2 from Moody's Investors Service, AA-plus from Standard & Poor's and AA from Fitch Ratings. There is an optional call on July 1, 2024.
Investors were initially concerned about some uncertainty surrounding the federal transportation budget currently volleying between the House and Senate. Without a conclusion in sight, market participants were concerned that the current budget would expire, pressuring state transportation budget and effectively their ability to service debt.
San Antonio also issued $5.97 million in tax notes with yields ranging from 0.24% with a 2% coupon in 2016 to 1.17% with a 3% coupon in 2021. There is a sealed bid on the 2015 maturity.
The notes do not have a call option, and like the refunding bonds received triple-A ratings from the three major rating agencies. Interest accrues on August 20, 2024.
There were no long-term competitive deals over $50 million priced on Tuesday, according to data provided by TM3.
