NEW YORK – Munis continued to soar Tuesday, following Treasuries, as fears out of Europe pushed investors to safe have assets. The 10-year muni saw the biggest rally, dropping to the lowest it has been for about a month.
“It’s been a very busy day,” said a trader in New Jersey. “Our market is up and munis were bumped substantially – 10 basis points from 2022 on out and that’s fairly substantial.”
The trader added there were plenty of big deals in the market and “all the deals did very well.”
On Tuesday, muni yields fell across the curve, plummeting up to 11 basis points, according to the Municipal Market Data scale. Yields on the short-end of the curve fell two to four basis points, followed by seven basis point drop in yields on 5-year credits. Yields in the belly of the curve fell eight and nine basis points and yields on the 10-year fell the most, plummeting 11 basis points. Yields on the long-end fell 10 basis points.
The two-year closed at 0.42%, down two basis points from Monday, while the 30-year was down 10 basis points to 3.65%. The benchmark 10-year muni yield closed at 2.28%, down 11 basis points.
Treasuries continued their rally Tuesday, with yields plummeting eight to 46 basis points across the curve since last Thursday. By Tuesday’s close, the two-year was down two basis points to 0.24%, and the 10-year 30-year each fell 17 basis points to close at 1.96% and 2.97%, respectively.
“Obviously everything is driven by overseas,” said a trader in New York. “Our market is underperforming again pretty substantially.” The trader added the muni market will continue to underperform as the flight-to-quality trade continues.
Uncertainty revolving around Greece forced investors to flock to safe-haven assets. “EU rescue plans can unravel if a Greek referendum votes against latest austerity measure,” wrote MMD analyst Randy Smolik. “The referendum is weeks away but the markets were making quick adjustments now. The risk asset markets were in a state of panic.”
Indeed, all major indexes were down about 2.5%. The Dow Jones Industrial Average closed down 2.48%, or 297 points, to 11,658.
Issuance in the primary market Tuesday was substantial with several deals over $500 million hitting the market, and the much-anticipated $1.2 billion liberty revenue bonds issued by the New York Liberty Development Corp.
“There is healthy new issuance this week and that’s where customers will gravitate,” the New York trader added. “But you’re asking customers to chase lower yields and they are reluctant to do that so we will see if there is some follow through and that is the next step.”
With over $8 billion in new issuance this week, it is hard for munis to perform with stronger Treasuries, said MMD analyst Randy Smolik. “Competitive sales offered leadership but not all sales offered the same indication of strength. Customers could still buy negotiated product at attractive concessions.”
Priced by Goldman, Sachs & Co., NY Liberty Development Corp. issued revenue bonds to finance the 4 World Trade Center Project. The bonds are rated A-plus by Standard & Poor’s and A by Fitch Ratings.
The bonds yielded 4.95% in 2031, 5.15% and 5.07% in a split 2044 maturity, and 5.10% in 2051. Coupons ranged from 5% to 5.75% and bonds were callable at par in 2021.
A person familiar with the liberty bond deal said “demand was strong the interest rate favorable.”
JPMorgan priced $701.2 million of Connecticut general obligation bonds in two series. The bonds are rated double-A by all rating agencies.
Yields on the first series, $550 million of Series 2011D GO bonds, ranged from 0.44% with a 2% coupon in 2013 to 3.71% with a 5% coupon in 2031. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Yields on the second series, $151.2 million of Series 2011E GO refunding bonds, ranged from 0.44% with a 5% coupon in 2013 to 2.20% with a 5% coupon in 2019. Credits maturing in 2012 were offered via sealed bid.
RBC Capital Markets priced $498 million of lease revenue bonds for the California State Public Works Board. The bonds are rated A2 by Moody’s and BBB-plus by Standard & Poor’s and Fitch.
Yields ranged from 1.82% with a 2% coupon in 2014 to 5.25% with a 5.125% coupon in 2031. The bonds are callable at par in 2021.
Loop Capital Markets priced $216.1 million of sales tax revenue bonds for Chicago. The bonds are rated Aa2 by Moody’s Investors Service, AAA by Standard & Poor’s, and AA-minus by Fitch.
Bonds yielded 4.64% with a 4.375% coupon in 2035, 4.55% with a 5.25% coupon in 2038, and 4.71% with a 5% coupon in 2041. The bonds are callable at par in 2022.
In the competitive market, Bank of America Merrill Lynch won $300 million of Maryland’s Washington Suburban Sanitation District consolidated public improvement bonds. The credits are rated AAA by Fitch.
Yields ranged from 0.34% with a 5% coupon in 2013 to 3.5% with a 4% coupon in 2028. Bonds maturing in 2012, 2015 to 2020, and 2029 to 2031 were sold but not available. The bonds are callable at par in 2021.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board Monday showed gains.
A dealer sold to a customer Massachusetts School Building Authority 5s of 2019 at 2.24%, nine basis points lower than where they traded Friday.
A dealer sold to a customer Massachusetts School Building Authority 5s of 2021 at 2.63%, six basis points lower from where they traded Thursday.
Bonds from an interdealer trade of California 5.25s yielded 3.89%, 28 basis points from where they traded Friday.
