Short, Volatile Week Ends on a Quiet Note

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The holiday week started off with a bang for the municipal bond market — with much of the fireworks coming from outside the continental United States. It ended with a whimper, in a quiet trading day before the national holiday marking the birth of a nation.

Financial turmoil in Greece caused an early week flight-to-quality into U.S. Treasury bonds. And Puerto Rico municipal debt was rocked on Monday and Tuesday after a published report quoted Gov. Alejandro García Padilla as saying the commonwealth could not pay its $72 billion of debts.

Prices of Puerto Rico debt fell sharply amid the confusion surrounding the commonwealth's financial situation.

The governor then created a "Working Group for the Economic Recovery of Puerto Rico" to find a consensus on the restructuring of the commonwealth's public debt. The group is set to hold meetings with bondholders and market participants to discuss a restructuring of the bonds. At midweek, the Puerto Rico Electric Power Authority made its $416 million bond payment due July 1. Additionally, PREPA's forbearance with its creditors was extended out past Labor Day to Sept. 15.

So by Wednesday and into Thursday, prices of commonwealth debt began to steady.

On Thursday, the Puerto Rico commonwealth Series 2014A general obligation 8s of 2035 were trading as low as 68.045 cents on the dollar, a high yield of 12.339%, according to the Municipal Securities Rulemaking Board's EMMA website. There were 16 trades totaling $19.3 million. On Wednesday, the GO 8s of 2035 had been trading as low as 68.25, a high yield of 12.301%; there were 30 trades totaling $41.9 million.

In trading on Tuesday, however, the GOs fell as low as 64, a high yield of 13.13%, in 110 trades totaling $223 million. On Monday, the GOs traded as low as 68.30, a high yield of 12.291%, in 93 trades totaling $141 million. This contrasts to last Friday, when the GOs traded as low as 76.75 cents on the dollar, a high yield of 10.874% in 19 trades totaling $22 million.

Separately on Thursday, the commonwealth Series 2012A GO public improvement 5s of 2041 also rose and were trading as low as 58.50 cents on the dollar, according to EMMA, a high yield of 9.24% in 50 trades totaling $7.7 million. On Wednesday, the 5s of 2041 were trading as low as 57.25, a high yield of 9.439%, in 85 trades totaling $43.3 million.

On Tuesday, the bonds were trading as low as 51.625, a high yield of 10.434%, in 125 trades totaling $44.3 million. On Monday, the bonds traded at a low price of 51.716, a high yield of 10.416%, in 48 trades totaling $26.6 million. On Friday, the bonds traded as low as 63.033, a high yield of 8.571% in 33 trades totaling $15.4 million, according to EMMA.

The uncertainty surrounding Puerto Rico and Greece led yields in the broad municipal market to drop six basis points on Monday, according to a read of Municipal Market Data's benchmark scale. But by the end of the week, yields had climbed back up to near where they had started out.

All the volatility apparently allowed the biggest muni issuer of the week to jump into the market a day ahead of schedule, most likely so it could take advantage of market conditions.

The Texas Transportation Commission's $781 million of highway bonds were priced by Citigroup on Monday, a day ahead of its expected sale. The bonds were rated triple-A by Moody's Investors Service and Standard & Poor's.

In the competitive arena, the Florida Department of Transportation came to market with a 24-hour notice sale of $242 million turnpike bonds. JPMorgan won the issue on Tuesday with a true interest cost of 3.58%. The bonds were rated Aa2 by Moody's and AA-minus by S&P.

The North Dakota Public Finance Authority sold a $125 million deal to JPMorgan with a TIC of 3.33%. The issue was rated triple-A by Moody's and S&P.

Back in the negotiated sector, Morgan Stanley priced the Metropolitan Washington Airports Authority's $346 million deal, rated A1 by Moody's and AA-minus by S&P and Fitch Ratings. Morgan Stanley also priced Arizona's $167 million of certificates of participation.

Secondary Trading

Prices of top-rated municipal bonds finished flat on Thursday, traders said, in very quiet pre-holiday trade. The bond markets are closed on Friday in observance of the Independence Day holiday and will reopen on Monday.

The yield on the 10-year benchmark muni general obligation on Thursday was unchanged from 2.32% on Wednesday, while the yield on the 30-year GO was steady at 3.33%, according to the final read of Municipal Market Data's triple-A scale. On Friday June 26, the 10-year muni yield stood at 2.34% while the 30-year was at 3.34%.

Treasury prices were lower on Thursday with the yield on the two-year Treasury note falling to 0.63% from 0.68% on Wednesday, while the 10-year yield fell to 2.39% from 2.43% and the 30-year yield decreased to 3.19% from 3.20%.

The 10-year muni to Treasury ratio was calculated on Thursday at 96.0% versus 96.0% on Wednesday, while the 30-year muni to Treasury ratio stood at 104.3% compared to 104.3%, according to MMD.

The Week's Most Actively Quoted Issues

Puerto Rico was one of the most actively quoted names in the week ended July 2, according to data released by Markit.

On the bid side, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 19 unique dealers. On the ask side, the commonwealth GO 8s of 2035 were quoted by 16 dealers. And among two-sided quotes, the commonwealth GO 8s of 2035 were quoted by 26 dealers, Markit said.

The Week's Most Actively Traded Issues

Some of the most actively traded issues in the week ended July 2 were in Puerto Rico, New York and California, according to Markit.

In the revenue bond sector, the New York City Transitional Finance Authority's BARB 4s of 2044 were traded 60 times. In the GO bond sector, the Puerto Rico commonwealth GO 8s of 2035 were traded 171 times. And in the taxable bond sector, the Industry Public Facilities Authority, Calif., tax allocation revenue 5 3/4s of 2024 were traded 20 times, according to Markit.

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