Despite relatively limited supply, investors have been shifting the focus of the municipal market over to the primary, leaving the secondary largely flat and wheezing.
Low muni yields and major uncertainties about the economy have left investors discouraged and without a clear picture, a trader in New York said.
“People who have money put it to work in the primary, leaving the secondary behind a bit,” he added. “A nice name comes and you pay up for it, but it seems there’s less and less follow-through in the secondary.”
Wednesday was no different. The day’s deals continued to price; the market continued to be firm. “But it seems like there are some offerings on the Street that appear to be at the same prices they were at a week ago,” the New York trader said.
Tax-exempt yields mostly held steady across the curve to close the day, according to the Municipal Market Data triple-A scale. Bonds maturing between 2028 and 2031 firmed one basis point. Maturities elsewhere on the curve were unchanged.
The 10-year benchmark yield held at 2.63% for the fifth day in a row, the MMD scale showed. The 30-year yield remained at 4.24%, just one basis point above its low since Nov. 12.
The two-year yield stayed at 0.42% for the eighth consecutive day, its lowest level since Sept. 7, according to MMD numbers. Before that, it had held at 0.44% for 17 straight sessions.
“Both munis and Treasuries had a relatively meaningless session,” wrote Randy Smolik, an MMD analyst. “Muni dealers claimed that inquiries kept bonds moving but noted little motivation to make any major position changes.”
Secondary trading was indeed light Wednesday, according to a trader in New Jersey. The market appeared to be getting cautious, he added. “With July 1 coupon payments coming, people are biding their time,” the trader said. “The muni market still offers a good deal of value.”
After firming slightly across the curve throughout the day, Treasury yields closed flat. The 10-year yield held at 2.99%. The 30-year yield hovered at 4.22%, and the two-year yield remained at 0.38%.
Investors expect new deals this week to total around $5 billion. Last week, the market saw a revised $5.11 billion, following a revised $7.8 billion the week before. For the year new deals have averaged around $3 billion.
The New York City Transitional Finance Authority issued $300 million of building aid revenue bonds in the competitive market. About $200 million were tax-exempt, and the remaining $100 million were taxable qualified school construction bonds. They were rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
For the tax-exempt portion, Bank of America Merrill Lynch won with a true interest cost of 4.753% for $200 million of building aid revenue bonds. Coupons range from 4% in 2027 to 5% in 2040.
Yields range from 4.25% in 2029 to 4.43% in 2031. Bonds maturing in 2027, 2028, and 2032 to 2040 were sold but not available.
For the taxable portion, Goldman, Sachs & Co. won with a TIC of 4.80% for $100 million of QSCBs. They offered coupons of 4.80% and yields of 4.75% in 2026.
In the negotiated market, Citi priced $355.1 million of Kentucky State Property and Buildings Commission revenue and revenue refunding bonds. The bonds were rated Aa3 by Moody’s, and A-plus by Standard & Poor’s and AA-minus by Fitch.
Coupons range from 2.00% in 2013 to 5.00% in 2031. Yields range from 0.90% in 2013 to 4.74% in 2031. At press time, most of the maturities at the short end of the curve were sold out. Balances in most of the intermediate portion of the curve remained.
JPMorgan priced $146.4 million of Texas college student loan general obligation bonds in two series. The bonds for both series were rated Aaa by Moody’s and AA-plus by Standard & Poor’s.
Coupons in the first series, for $119.5 million, are 5% in 2015 to 2036. Yields ranged from 1.78% in 2015 to 5.03% in 2036.
The second series, for $26.9 million, had coupons ranging from 5% in 2013 to 3% in 2018. Yields range from 1.07% in 2013 to 2.80% in 2018. Bonds maturing in 2012 were offered via sealed bid.
Reception was mostly mixed for the year’s biggest competitive sale so far, the almost $1 billion Georgia general obligation bond deals that were reoffered Tuesday. But pricing ended up quite strong, with yields generally on par with the MMD triple-A scale, wrote Alan Schankel, an analyst at Janney Capital Markets.
Morgan Stanley priced $92.7 million in Los Angeles Harbor Department refunding revenue bonds in two series. The bonds for both series were rated double-A by all three agencies.
Coupons in the first series, $59.4 million, range from 3% in 2015 to 5% in 2022. Yields ranged from 1.93% in 2015 to 4.96% in 2022. The second series, $33.3 million, had coupons ranging from 4% in 2022 to 5% in 2025. Yields range from 3.30% in 2022 to 3.77% in 2025. The yields for both series dropped around five basis points throughout the day.
In economic news, the Federal Open Market Committee decided to leave unchanged its target for overnight rates at its June meeting. The committee indicated that it will end its quantitative easing program at the end of the month, as scheduled. It maintained its forecast that rates would stay low for an extended period.
But the committee’s tenor said a lot, Guy LeBas, Janney’s chief fixed-income strategist, wrote in a statement. Mention of a slower recovery and a weaker labor market spoke volumes, he said, even if characterized as “temporary.”
“The tone of the accompanying statement was mixed, reflecting a downbeat evolution of economic data released since the prior meeting, but also tentative hopes that the downturn is temporary,” LeBas wrote. “At this point, the Fed has chosen to leave rates at their most accommodative for 31 months, already the longest period of constant rates in the history of the fed funds policy tool.”