The tax-exempt market saw reasonable activity Thursday as supply was well absorbed.
"There was reasonable activity today and I don't think much changed in price," a trader in Los Angeles said. "We are not seeing any adjustments willing to be made to get things done and that's a good sign."
The $127.2 million of California Department of Veterans Affairs home purchase revenue bonds that were priced "went reasonably well," he said. "I think the market is just feeling OK. "That's the best you can say about it and I don't think we're on the verge of any great movement. It will just hold where it is."
Despite that, the trader said the market is much better than it was a year ago. "What a relief," he said. "A year ago, if I looked at bids posted, I was lucky if I got three or four. And now it's better than 20 bids on the high grade. That's a tremendous change."
A trader in New York said even though the primary market was light as the end of the week neared, buyers were still eating up new bonds. "Negotiated new deals are going really well even with the Treasury down," the trader said.
But the secondary market was showing weakness, he said. "Some dealers are cutting bonds to move them," he noted, "as well as traders giving no counters to any bid we show. It's very sloppy."
A trader in Chicago said activity was focused in the secondary. "I think there is definitely some money to be put to work," he said. "But everyone is aware of credit risk." But market participants are taking call risk, the trader said. "Call risk is what's for dinner."
Business in the past few days has been driven by credits that are callable between 2013 and 2015. "Individual investors will take a chance that the bonds won't be called, they won't get their principal back, and they'll get a much higher yield to maturity than what a par bond would give them in 2024," he said.
"You can pick up 100 basis points more than par bonds with the same maturities," he said, but the credits still need to be solid general obligation or revenue bonds.
The day ended mostly flat from the short term through the middle, with minimal adjustments on the long end. Bid-wanted volume was slightly higher, traders said. Munis were mixed, according to the Municipal Market Data scale, with firming on the short end and weakening out long.
The two-year yield fell three basis points while the three-year dropped one basis point. The five-year yield declined three basis points. Yields from the belly of the curve to the 20-year were unchanged, but yields longer than 20 years rose two basis points.
On Thursday, the two-year yield closed down three basis points to 0.39% after holding steady at 0.42% for 20 consecutive trading sessions. The 10-year yield finished flat at 2.22%. The 30-year yield finished up two basis points to 3.86%.
Treasuries were choppy but ended the day flat to slightly weaker. The two-year closed flat at 0.26%. The benchmark 10-year yield closed up two basis points to 2.10% and the 30-year yield finished up three basis points to 3.10%.
In the primary market, issuers in California stole the show. Bank of America Merrill Lynch priced $148.2 million of California Health Facilities Financing Authority revenue refunding bonds for Cedars-Sinai Medical Center. The credit is rated A2 by Moody's Investors Service and A-plus by Fitch Ratings.
Yields ranged from 1.10% with a 3% coupon in 2013 to 3.47% with a 5% coupon in 2021. Bonds maturing in 2012 were offered via sealed bid.
B of A Merrill priced $127.2 million of California Department of Veterans Affairs home purchase revenue bonds. The credit is rated Aa3 by Moody's, AA by Standard & Poor's, and AA-minus by Fitch.
Yields on the first series, $123.2 million of bonds not subject to the alternative minimum tax, ranged from 0.75% priced at par in 2013 to 4.542% with a 4.5% coupon in 2028. The debt is callable at par in 2021.
Bonds in the second series, $4 million subject to the alternative minimum tax, yielded 1.25% priced at par in 2013.
Barclays Capital repriced $55 million of California Municipal Finance Authority revenue bonds on behalf of Emerson College. The credit is rated Baa1 by Moody's and BBB-plus by Standard & Poor's.
The bonds yielded 5.11% with a 5% coupon in 2028, 5.38% with a 5.75% coupon in 2033, and 5.54% with a 6% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered two, seven, and six basis points, respectively, from preliminary pricing.
In the competitive market, Bank of America Merrill won the bid for $119.1 million of Kansas Development Finance Authority revenue bonds. The credit is rated Aa3 by Moody's and AA by Standard & Poor's.
Yields ranged from 0.61% and 0.68% with 4% coupons in a 2013 split maturity to 3.00% at par in 2021. Debt maturing in 2012, 2020, 2022, and 2023 was sold but not available. The bonds are callable at par in 2019.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening.
A dealer sold to a customer Nebraska Public Power District 4.38s of 2022 at 3.52% Thursday, 17 basis points higher than where they traded Wednesday.
Bonds from an interdealer trade of Wilson County, Tenn., 5.4s of 2032 yielded 4.73%, eight basis points higher than where they traded Wednesday.
Bonds from an interdealer trade of Hawaii 5s of 2027 yielded 3.47%, three basis points higher than where they traded Wednesday.
