The tax-exempt market extended its weaker streak into Wednesday as traders noted that rising yields weren’t surprising, given the distaste over record low yields.
Still, some traders said the weakening was not enough, and many bonds seemed overpriced.
“It’s quiet and there is nothing to sell,” a New Jersey trader said. “There are bonds in the street, but they are too expensive. It’s like they are put out there as bait for people who don’t know what they’re doing.”
The bonds being offered are the same ones that have been on the street for months, he said.
“Show me something new,” the trader said. “I’ve seen California and Illinois. What’s new? And they are three to four basis points too high. They are waiting for someone dumb enough to pick it off.”
Earlier in the afternoon, traders noted activity was busier than in earlier in the week.
“There is a bit of action,” a New York trader said. “It’s spotty, though, and a bit weaker.”
Other traders said bonds have found a home without any forced selling.
“The market had run so far — it’s been such a grind to lower rates that it’s not surprising, given this lull, that you’d have a bit of a backup,” another New York trader said.
“Our market is probably in decent shape,” he said. “We’ve certainly outperformed the Treasury market, and will probably continue to do so.”
Price action so far has been muted, due mostly to a perceived apathy, the trader said.
“What’s interesting is that you can quote stuff down, but really can’t get any execution on the real bid side,” he added.
In the primary market Wednesday, JPMorgan and Wells Fargo Securities held a second day of retail for $10 billion of California revenue anticipation notes, rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s and F-1 by Fitch Ratings. Institutional pricing is expected Thursday.
Pricing on the second day of retail was the same as the first retail order period Tuesday. Bonds in the first series of $2.5 billion yielded 0.30% to 0.40% with a 2.5% coupon in 2013. Other portions of credits maturing in 2013 were not offered for retail.
Bonds in the second series of $7.5 billion yielded 0.40% to 0.55% with a 2.5% coupon in 2013.
Retail investors placed about $2.31 billion of orders out of the $10 billion on the first day of retail pricing, according to a spokesman for the California state treasurer’s office. Figures were not yet available on the second retail order period.
Outside the biggest deal, Bank of America Merrill Lynch sold $781.6 million of Energy Northwest, Wash., Columbia generating station electric revenue bonds. The credit is rated Aa1 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.
Bonds in the first series, $747.5 million of taxable debt, were priced at par with coupons ranging from 1.063% in 2015 to 4.144% in 2037. The bonds were priced 65 basis points to 180 basis points above the comparable Treasury yield.
Yields on the second series, $34.1 million of tax-exempt debt, ranged from 2.50% with a 5% coupon in 2025 to 4.10% with a 4% coupon in 2044. The bonds are callable at par in 2022.
On Wednesday, the 10-year Municipal Market Data yield climbed seven basis points to 1.87%, while the 30-year yield rose five basis points to 3.00%. The two-year finished unchanged at 0.29% for the 15th straight session.
Treasuries continued to fall in price as yields climbed higher. The benchmark 10-year yield and the 30-year yield spiked up eight basis points each to 1.81% and 2.91%, respectively. The two-year yield jumped one basis point to 0.30%.
In the secondary market, trades compiled by data provider Markit showed weakening.
Yields on Ohio 5s of 2019 and Florida State Board of Education 2.25s of 2022 jumped seven basis points each to 1.57% and 2.18%, respectively.
Yields on San Francisco Public Utilities Commission 5.75s of 2035 and Western Minnesota Municipal Power Agency 5s of 2027 spiked six basis points each to 4.52% and 2.68%, respectively. Yields on New York’s Metropolitan Transportation Authority 3.5s of 2032 and Chicago O’Hare International Airport 4s of 2030 rose two basis points each to 3.57% and 4.11%.
Some traders noted the secondary was busier as the week wore on, but still relatively quiet.
“Secondary activity picked up, but still had the symptoms of summer malaise overall,” wrote Dan Toboja at Ziegler Capital Markets.
“Despite constant inflows and a supply calendar that is hardly overwhelming, the market has weakened over the last two weeks,” he said, adding that rising Treasury yields, signs of stability in Europe and summer vacations have all contributed to weaker munis.
“The long end of the market doesn’t appear to have demand depth at the current rates. At best, there is a grudging acceptance of rates by some retail accounts and a lack of selling pressure by the institutional holders,” he said. “As all eyes are on the new-issue supply, institutional customers have plenty of cash to put to work, but are focusing on the primary for the liquidity advantage if rates do back up more substantially.”
