New issuance provided most of the action in the municipal market Wednesday. Investors took to what most saw as well-priced deals, lowering the yields in several at repricing.
Meanwhile, disappointment in the economy and in the Euro zone strengthened Treasury yields across all but the front of the curve, which consequently pushed their muni cousins lower in similar spots.
“It was a firm day today,” a trader in New York said. “And it was definitely propped up by Treasuries.”
The market closed the day’s session mostly firmer along the curve, according to the Municipal Market Data scale. Bonds at the short end of the curve, as well as those from 2022 to 2035, held steady. Those maturities in 2017 through 2021 and from 2036 to 2041 fell one to two basis points.
Munis yields inched downward across most of the curve Wednesday. The 10-year muni yield slipped one basis point to 2.22%, its lowest since Sept. 2.
The 30-year muni yield ticked down a basis point to 3.85%, its lowest level since Oct. 26. The two-year muni yield remained at 0.30%, its lowest yield in more than two years.
Treasury yields, after starting the day slightly softer, firmed noticeably everywhere but at the short end of the curve. The benchmark 10-year Treasury yield slid seven basis points to 2.16%.
The 30-year yield dropped 11 basis points to 3.56%. The two-year yield continued to hold steady at 0.20%, as it did all Tuesday, two basis points above its all-time low.
Secondary market activity was sparse, according to MMD analyst Randy Smolik. “Dealers showed flexibility in a variety of names,” he wrote in a report Wednesday, “but still the ratio-minded buyers stuck to buying high-grades around the 10-year range and some nibbling in the very long end of the dollar sector.”
New issuance was the story Wednesday. The amount reaching the market this week is expected to more than double last week’s total. Volume should rise to around $5.28 billion from the skimpy $2.25 billion of municipal bond sales seen last week, according to industry estimates.
A huge negotiated deal that Morgan Stanley has priced accounts for a large portion of the pie. The firm priced for retail $992.6 million of Indiana Finance Authority wastewater utility revenue bonds in three series. The deal was upsized $25 million at repricing.
The first series, $678.5 million of first-lien wastewater utility revenue bonds, Series 2011A, is rated A1 by Moody’s Investors Service and AA by Standard & Poor’s.
Yields range from 0.50% with a 2.00% coupon in 2012 to 4.95% with a 5.00% coupon in 2041. Yields at repricing fell as much as 12 basis points for two-year maturities, 8 basis points for five-year maturities, and five basis points for credits maturing after 10 years.
The second series, $268 million of second-lien wastewater utility revenue bonds, Series 2011B, is rated A2 by Moody’s and AA-minus by Standard & Poor’s. Yields range from 1.20% with a 5.00% coupon in 2014 to 5.12% with a 5.00% coupon in 2041. Yields for credits maturing from 2014 through 2018 fell five basis points at repricing.
The third series, $46.1 million of second-lien wastewater utility revenue bonds, Series 2011C, is also rated A2 by Moody’s and AA-minus by Standard & Poor’s. Yields were 1.95% with a 3.00% coupon in 2016.
M.R. Beal & Co. priced $220.7 million of Dallas-Fort Worth International Airport joint revenue refunding bonds. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch Ratings. Yields range from 0.96% with a 4.00% coupon in 2014 to 4.68% with a 5.00% coupon in 2033. Debt maturing in 2012 was offered in a sealed bid.
Barclays Capital priced $158.4 million of Southern California Public Power Authority Milford wind corridor phase-two project revenue bonds. The bonds were rated AA-minus by Standard & Poor’s and Fitch.
Yields range from 2.74% with a 5.00% coupon in 2021 to 4.12% with a 5.25% coupon in 2031. No more orders were taken for credits maturing from 2013 to 2020. Debt maturing in 2012 was offered in a sealed bid.
In the competitive market, Wells Fargo Securities won $263.4 million of Louisville and Jefferson County Metropolitan Sewer District revenue debt. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields range from 0.40% with a 3.00% coupon in 2012 to 4.35% with a 5.00% coupon in 2034. Credits maturing in 2013, 2014, and 2016 were not formally reoffered.
Traders have said that, with all of the cash still on the sidelines, the larger new deals have received a solid reception. Because the deals were generally priced attractively they drew interest from institutions, which still have a tremendous amount of cash waiting for allocation.
But there are limits to investor interest, a trader in New Jersey said. “For the right issue at the right price, there is money,” he said. “But you’re not seeing people step up and pay up for bonds at this point.”
The major stock market indexes, which for much of last week captivated the attention of investors everywhere with their blue-whale-sized leaps and dives, were largely flat on the day. The Dow Jones Industrial Average gained just four points by the close.
On the economic front, the Labor Department reported Wednesday that the producer price index rose 0.2% in July on a seasonally adjusted basis. That followed an unrevised 0.4% drop in June.
Core producer prices, not including food and energy, rose 0.4%. It marks the eighth consecutive increase. For June, core prices grew 0.3%.