The tax-exempt market finished stronger on Thursday as the week’s last big deal was priced and received well by investors.
Outside the primary market, traders noted activity started to slow as New York’s heat wave and the fast-approaching weekend prompted sluggish trading.
In the competitive market, triple-A rated Georgia auctioned $600 million of general obligation bonds in two pricings.
JPMorgan won the bid for the first pricing of $520.1 million. Yields ranged from 0.32% with a 5% coupon in 2014 to 3.34% with a 4% coupon in 2032. Prices on credits maturing in 2013, 2015, 2016, and 2020 were not formally re-offered. The bonds are callable at par in 2022.
JPMorgan also won the second pricing of $79.9 million of taxable bonds, and had coupons ranging from 0.35% in 2013 to 3.3% in 2032. Prices were not formally re-offered. The credits were priced 24 basis points to 140 basis points above the comparable Treasury.
And despite the focus on the big deal, some traders noted the rest of the market was quiet. “The week is pretty much over,” a New York trader said. “Secondary is kind of dead and people are bored.”
Munis ended stronger Thursday after a weaker session Wednesday, according to the Municipal Market Data scale. Yields inside 10 years were steady while yields outside 11 years fell as much as three basis points.
On Thursday, the 10-year tax-exempt yield closed at 1.86% for the fifth consecutive trading session while the two-year yield finished flat at 0.32% for the 15th straight session. The 30-year yield fell two basis points to 3.15%.
Treasuries were stronger after weak economic data in the morning. The benchmark 10-year yield fell three basis points to 1.62% while the 30-year yield dropped four basis points to 2.68%. The two-year yield dropped one basis point to 0.31%.
In the secondary muni market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Seattle, Wash., Drain and Wastewater 5s of 2029 rose three basis points to 2.98% while Pennsylvania 5s of 2022 rose one basis point to 2.11%.
Other trades were stronger. Yields on New Jersey’s Tobacco Settlement Financing Corp. 4.75s of 2034 and Wisconsin 5s of 2021 each fell three basis points to 6.70% and 2.11%. Yields on Puerto Rico 5s of 2041 and Illinois Finance Authority 4s of 2032 each dropped two basis points to 5.09% and 4.05%.
So far for the week, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive.
The two-year ratio dropped to 103.2% on Thursday from 106.7% on Monday. The 10-year ratio fell to 114.8% on Thursday from 117.7%. And the 30-year ratio dropped slightly to 117.5% from 118% at the beginning of the week.
Munis have continued to outperform Treasuries for the month of June as ratios have consistently fallen since June 1. The two-year ratio fell from 123.1% at the beginning of June while the 10-year ratio fell from 119.9% at the start of the month. The 30-year ratio dropped from 120.6% at the start of June.
In other muni news, buy-side sources said the $667 million Detroit Water and Sewerage Department new-money and refunding fit the bill among retail and institutional investors because of its yields and strong security pledge. And even though Michigan supply has been somewhat plentiful lately, the deal was still highly sought-after, they said.
Goldman, Sachs & Co. priced the deal on Wednesday after delaying it last week because the city was unsure if it could make scheduled debt payments due to a dispute with Michigan.
Bonds insured by Assured Guaranty Municipal Corp. had yields ranging from 1.72% with a 5% coupon in 2014 to 5.30% with a 5.25% coupon in 2039. Yields were lowered 10 basis points in the repricing, but still appeared relatively attractive when compared to the generic, triple-A general obligation scale in 2039 published by MMD.
In addition, the uninsured bonds yielded 2.12% with a 5% coupon in 2015 and 5.30% with a 5.25% coupon in 2039. Both the insured and uninsured 2039 maturities were priced 16 basis points cheaper than the comparable MMD scale.
John Hallacy, head of municipal research at Bank of America Merrill Lynch, said “any paper with some yield in this market is of interest to buyers.”
He said investors value the fact that there is a lien on system revenue and the service area is larger than the city proper. “Ratings are higher for the system than for the GO,” he explained.
John Mousseau, managing director and portfolio manager at Cumberland Advisors in Vineland, N.J., agreed. “The lien on the sewer revs is what makes the credit,” he said.
The day before the pricing, Mousseau predicted the deal was to be a “food fight” – even though Michigan supply, particularly current refunding, has been fairly robust in recent months.
“The overall state of Michigan away from Detroit is actually improving so Michigan paper — which trades cheaper because of the headline risk associated with Detroit — has been a very good buy for national accounts,” he explained. “I think retail is pretty good with this name and the deal was priced pretty cheap.”