Bond yields at a glance | ||||
MBIS benchmark (~AA) | MBIS AAA | MMD AAA | U.S. Treasuries | |
10 year | 2.623 | 2.518 | 2.37 | 2.77 |
30 year | 3.082 | 2.979 | 2.92 | 3.05 |
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MBIS indices are updated hourly on the Bond Buyer Data Workstation. | ||||
Municipal bond buyers adopted a cautious tone on Tuesday, waiting for trading volatility to die down before jumping back into the market. The recent roller-coaster ride in the stock market is fueling investor uncertainity and that concern may provide an entry point for new buyers into the fixed income markets.
“Both the volatility and downward bias promote great anxiety for the equity investor, who heretofore was in a lulled sense of comfortable security for continuous growth,” said Peter Delahunt, managing director at Raymond James & Associates. “This anxiety should serve to pivot their attention to the overlooked recent rise in yields, especially for the relative attractiveness of munis for the taxpaying investors,” he added. “Suddenly fixed returns don’t seem so bad" to investors.
On Tuesday, there was a wait and see attitude among the buy-side market that was stalling activity on the day, said a New Jersey trader. “I think you need to see investors doing more than dipping their toe into the water,” he said.
“We aren’t seeing the follow-through from the buyers at these levels where the scale is setting prices high and yields lower,” the trader said. “Treasuries sold off and municipal ratios as a result have lowered as well and made munis less attractive since [Monday].”
The MBIS municipal non-callable 5% GO benchmark scale and the MBIS AAA scale were both stronger in late trading. Ron Valinoti, founder of Triangle Park Capital Markets Data and manager of business operations for MBIS Brokerage partners, said he thought it had captured the correct tone of the market on Monday.
"We saw the curve move on Monday along with Treasuries,” he said, adding this was validated by a good deal of market activity then.
On Tuesday, the 10-year MBIS muni benchmark yield fell to 2.623% from the final read of 2.651% on Monday, according to
Top-rated municipal bonds on the MMD scale were substantially stronger on Tuesday.
“Munis essentially sat out Monday’s Treasury rally while stocks melted down. They are playing catch-up [Tuesday] which is typical because muni trading doesn’t often apply the brakes and reverse course that fast,” said Greg Saulnier, research analyst at Municipal Market Data. “In fact, we were still noticing some muni drift around midday [on Monday] despite Treasuries maintaining gains. Now that they have appreciated even further, muni buyers are engaged again.”
The yield on the 10-year benchmark muni general obligation rose nine basis points to 2.37% from 2.46% on Monday, while the 30-year GO yield dropped nine basis points to 2.92% from 3.01%, according to the final read of MMD’s triple-A scale.
U.S. Treasuries were weaker on Tuesday. The 10-year Treasury yield rose to 2.77% from 2.75% while the yield on the 30-year Treasury gained to 3.05% from 3.03%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 85.6% compared with 88.0% on Monday, while the 30-year muni-to-Treasury ratio stood at 96.0% versus 98.1%, according to MMD.
The recent rise in bond yields has been somewhat unexpected, some market participants said.
“A month ago, at the beginning of January everyone was anticipating major reinvestments, and look at us a month later, we are off at least 45 basis points on the 10-year and out,” a New York trader said recently. “It’s a real shake up.”
Other market observers agreed.
“The bond markets have experienced a hiccup in the first part of this year, with the 10-year bond rising 45 basis points in yield to 2.85% from 2.40%, and the 30-year bond rising 37 basis points in yield to 3.11% from 2.74%,” said John Mousseau, executive vice president at Cumberland Advisors. “Our feeling is that these yields are rising in one measure to compete with the blistering start to the stock market (which itself has seen bouts of volatility in the past week).”
The New York trader, however, said he believes that rising rates would be healthy for the market.
“When we have higher rates, the short end is more attractive and you will bring some of the retail customers back in,” he explained.
On the other hand, he said the low supply on this week’s calendar is a bit disappointing to investors.
“Customers are uncomfortable without supply,” he added.
Previous session's activity
The Municipal Securities Rulemaking Board reported 38,781 trades on Monday on volume of $7.46 billion. California, Texas and New York were the three states with the most trades on Thursday, with the Golden State taking 15.108% of the market, Lone Star State taking 14.227% and the Empire State taking 9.285%.
Primary market
JPMorgan Securities priced Utah’s $349.99 million of Series 2018 general obligation bonds.
The issue was priced to yield from 1.20% with a 5% coupon in 2018 to 3.20% with a 3.125% coupon in 2032.
The deal is rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.
Citigroup priced Houston’s $137.08 million of airport system special facilities revenue bonds on Tuesday.
The $90.65 million of Series 2018 bonds subject to the alternative minimum tax for the United Airlines technical operations center project were priced as 5s to yield 3.60% in 2028. The $46.43 million of Series 2018C bonds subject to the alternative minimum tax for the United Airlines airport improvement project were priced as 5s to yield 3.60% in 2028.
The deal is rated BB-minus by S&P.
Since 2008, the city has issued about $14 billion of bonds, with the most issuance occurring in 2014 when it sold $2.52 billion. It sold the least amount of bonds in 2015 when it issued $485.1 million.
Citi priced and repriced Delaware’s $213.4 million of Series 2018A general obligation bonds and $25 million of Series 2018B taxable bonds.
The tax-exempts were repriced as 5s to yield from 1.64% in 2021 to 2.84% in 2038. The taxables were repriced as 2.15s to yield 2% in 2019 and as 2.30s to yield 2.17% in 2020.
The deal is rated triple-A by Moody’s, S&P and Fitch.
In the competitive arena, Fort Lauderdale, Fla., sold $196.04 million of Series 2018 water and sewer revenue bonds.
Citi won the bonds with a true interest cost of 3.7617%. The issue was priced as 4s to yield 3.37% in 2037, 3.40% in 2038, 3.48% in 2040, 3.49% in 2041, 3.51% in 2043%, 3.55% in 2047 as 3 1/2s to yield 3.60% in 2048.
The deal is rated Aa1 by Moody’s and AA-plus by S&P.
In the short-term competitive sector, Richland County, S.C., sold $250 million of transportation sales and use tax general obligation bond anticipation notes.
Wells Fargo Securities won the BANs and priced them at 101.573 with a 3% coupon to yield 1.40%.
The BANs are rated at MIG1 by Moody’s and SP1-plus by S&P.
Treasury auctions bills, notes
The Treasury Department Tuesday auctioned $15 billion of four-week bills at a 1.480% high yield, a price of 99.884889. The coupon equivalent was 1.502%. The bid-to-cover ratio was 3.16. Tenders at the high rate were allotted 46.82%. The median rate was 1.430%. The low rate was 1.370%.
Treasury also sold $30 billion 70-day cash management bills, dated Feb. 8, due April 19, at a 1.440% high tender rate. The bid to cover ratio was 3.80. The coupon equivalent was 1.464%. The price was 99.720000. The low bid was 1.400%. The median bid was 1.430%. Tenders at the high were allotted 84.57%.
Additionally, Treasury auctioned $26 billion of three-year notes with a 2 1/4% coupon at a 2.280% high yield, a price of 99.913485. The bid-to-cover ratio was 3.00.
The median yield was 2.230%. The low yield was 2.000%. Tenders at the high yield were allotted 9.79%. All competitive tenders at lower yields were accepted in full.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
