The municipal market firmed Tuesday with a lift from retail customers putting January money to work.
Inclement weather, in the form of the formidably named Polar vortex, threatened communities across the Midwest and Northeast with Arctic temperatures. But the cold front failed to stop the first new issues of the year from pricing.
Tax-exempt yields outperformed those of Treasuries, flattening the curve according to one prominent market gauge.
"It was people coming out of their holiday shells today," a trader in Texas said, speaking of the stronger tone in the market. "But it was also people stocking some bonds, getting back in the office and putting money to work."
By midday, muni yields moved lower alongside those of Treasuries and appeared primed to outperform by the session's close, a trader in Chicago said. Trading in the secondary continued apace, as investors awaiting the coming supply had limited alternatives.
Issuers that have underperformed recently watched their spreads tighten to market scales, he added.
Some credits are "trading a little tighter, especially up in the front end of the curve," the trader said. "Obviously everyone wants to be up there because of possibly spiking interest rates, but everything top to bottom is grinding tighter spread-wise. Some of your names that have been beat up, like some of your New York credits, have gotten tighter, especially in that 15-year range, where it's kind of a dead zone."
Investors showed an appetite for discount paper, or credits with coupons around 3.00%, with prices around 95-to-98 cents to the dollar, maturing between 2025 and 2028, the trader in Texas said. "I would say the market was stronger," he added. "There was enough movement in the discounts, especially, to warrant a couple-basis-point bump, anyway."
Although investors anticipate few large issues this week, some deals have appeared. Potential long-term volume is expected to total $1.79 billion, up from sales of $10.8 million last week. Some market analysts, though, anticipate the calendar will reach about $2.5 billion this week.
JPMorgan priced the week's largest deal, which arrived on the negotiated calendar, $240 million of University of Texas Permanent University Fund bonds. They were rated triple-A by the major credit rating agencies.
The bonds arrived structured in a bullet maturity with a yield of 4.27% and a 5.00% coupon in 2041. The bonds are callable at par in 2023.
The deal met a receptive audience, mostly comprised of institutions, the trader in Texas said. The credits were oversubscribed and saw a three-basis-point drop in yield on the day.
"It's attractively priced," he said.
JPMorgan also priced $81.8 million of Massachusetts Development Finance Agency revenue bonds for Phillips Academy in taxable and tax-exempt issues. The bonds are rated triple-A by Moody's Investors Service and Standard & Poor's.
Yields in the tax-exempt issue, $51.6 million, range from 4.19% with a 5.00% coupon in 2038 to 4.33% with a 5.00% coupon in 2043. The bonds are callable at par in 2023.
Yields in the taxable segment, $30.2 million, had a coupon of 4.844% priced at par in 2043, at 95 basis points above the equivalent Treasury yield.
Barclays is expected to price $150 million of Massachusetts Development Finance Agency revenue bonds for Northeastern University on Thursday.
Trades in the secondary market Tuesday were stronger, according to data from Markit. Yields on New Caney, Texas, Municipal Utility District refunding 4.25s of 2031 fell four basis points to 4.33%.
Yields on Broward County, Fla., Airport System revenue 5s of 2042 and California Community Development Authority revenue 5s of 2042 each declined three basis points to 5.04% and 5.10%, respectively. Yields on Pennsylvania Economic Development Financing Authority revenue 4.25s of 2026 and New York State Thruway Authority revenue 5s of 2042 each decreased two basis points to 4.31% and 4.75%, respectively.
High-grade and high-yield munis saw yields fall earlier in the day, Interactive Data noted in its Tuesday report. They dropped by as much as 10 basis points from Monday's session for certain tobacco credits.
Yields on the Municipal Market Data triple-A scale ended Tuesday steady through two years. Thereafter they fell by as much as three basis points, with the greatest strength found in debt maturing between 10 and 27 years.
Triple-A, tax-exempt yields ended the day stronger past the front end of the curve. The 10-year triple-A tax-exempt yield fell three basis points Tuesday to 2.75%. The 30-year dipped two basis points to 4.17%, while the two-year yield remained at 0.34%.
The Municipal Market Advisors benchmark triple-A scale curve flattened as yields descended Tuesday by as much as six basis points. The 10-year triple-A yield slipped three basis points to 2.75%. The 30-year plunged six basis points to 4.34%, while the two-year held at 0.35%.
Treasury yields started Tuesday morning lower and mostly held their levels. The 10-year yield fell two basis points to 2.95%. The 30-year yield slipped one basis points to 3.89%. The two-year held at 0.41%.
Yields fell in both muni and Treasury markets as prices rose in the equities markets. The Dow Jones Industrial Average saw a 105.84-point gain to 16,530.94; the S&P 500 rose 11.11 points to 1,837.88.
