Revisiting a favorite from earlier this month, investors have found value in the state of Maryland's general obligation intermediate duration maturities during trading Wednesday morning.
Bonds maturing in 2028 and 2029 have picked up significant volume, with $59.01 million of 3s of 2028 traded and $5.74 million of 3s of 2029 traded as of noon Wednesday. The deal carries a triple-A rating, but investors have found a discount on the bonds as attention has been placed elsewhere on the curve recently, said a New York based trader.
"They're doing okay because the 2028s and 2029s are great pieces," said the trader. "They're retail oriented with a dollar price on the coupon. Ordinarily you have a lot of demand for the name like Maryland and you don't often get a discount like what you're seeing right now."
The 14- and 15-year bonds, which carry 3% coupons, have seen their yields drop as low as 3.02% and 3.092%, respectively, during trading on Wednesday, according to the Municipal Securities Rulemaking Board's disclosure website, EMMA. Bids for the intermediate paper have held strong through the midday, and trading is expected to continue into the afternoon, said the trader.
The particular interest in the intermediate part of the curve is interesting as traders have been largely focused on the short end, attempting to hedge themselves against the threat of rising interest rates, the trader said. That interest was most evident during the aggressive pricing on Texas' $5.4 billion tax revenue anticipation notes deal Tuesday. The rate of 0.1326% was the lowest rate for the state's one-year notes since it began issuing TRANs in 1987, Comptroller Susan Combs said.
Maryland's GO deal made headlines in late July when it was issued because it was one of only a handful of "gold standard triple A" deals to hit the market in 2014, causing trader to speculate that its anticipated impact on the Municipal Market Data triple-A 5% scale would be large, as previously reported. The deal was bid on aggressively, but impact on the MMD curve was less than originally braced for; yields on the short end of the MMD curve were unchanged while the eight- to 10 year fell four basis points and the 12- to 29-year fell three, as previously reported.
A month later, the secondary trading on the deal was benefitting from a rally in the 10-year, the New York trader said. At midday, MMD's 10-year benchmark was at 2.37%. The rest of the municipal market has been steady; bonds maturing between 2015 and 2022 have remained unchanged while bonds maturing from 2023 through 2044 have strengthened up to two basis points, according to the MMD triple-A 5% scale.
Treasuries strengthened during trading on Wednesday. The two-year note fell one basis point to 0.51%, while the 10- and 30-year each tightened three basis points to 2.36% and 3.12%, respectively.
