Municipal bond buyers finally got the supply flow they've been asking for since the New Year began. With $9.03 billion in new issuance this week through Thursday, market observers became players, picking up fresh paper and sending yields as much as four basis points lower.
"The firming is a testament of the new issue supply that was welcomed by the market this week," one trader in Chicago said in an interview. "The whole week of supply was absorbed well by the market."
Issuance this week was led by Puerto Rico's $3.5 billion general obligation bond sale, which captivated market observers Wednesday as the biggest junk deal in municipal history. Underwriters on the deal solicited more than $16 billion of orders through 270 buyers.
The sale was followed up by California, which expanded its own GO deal by $200 million to $1.79 billion of bonds Wednesday to meet the needs of institutions, after retail buyers swarmed the offering in a retail order period that stretched across two days.
Chicago maintained the trend Wednesday, more than doubling its GO deal to $884 million from a planned $400 million sale. The city received $3.6 billion of orders on its first deal since its rating was dropped to Baa1.
"The secondary market so far this year has been paltry with what is out there, so now people are coming out of the sidelines," a portfolio manager on the west coast said in an interview.
Yields on munis were aided late in the day as Treasuries strengthened after reports that Russia's advances on the neighboring region of Crimea may not yet be through. Treasury yields on benchmark 30-year bonds fell by six basis points Thursday afternoon.
"If this move in treasuries is based on some unrest overseas you could see some uncertainty, and that of course could be reflected in munis," the Chicago trader said.
Russia's Defense Ministry announced military operations in regions close to the Ukrainian border Thursday, the New York Times reported. Russia's government acknowledged operations involving troops near Ukraine's eastern border, according to The Times.
Last week, concern over escalating tension between Russia and Ukraine pushed U.S. Treasury yields lower, aiding a rally in munis as buyers looked for safe investments.
"Munis are going to follow treasuries in that kind of scenario," one trader in Texas said in an interview. "I just don't know how much the situation can push them."
Positive news came for the economy Thursday as the Department of Labor announced falling jobless claims and rebounding retail sales.
Jobless claims for the week of March 8 fell by 9,000 to 315,000, pushing the four-week average to 2.916 million, 50,000 less than it was a month ago. As an additional boost to the economy, the retail sales report for February showed retail sales had increased by 0.3% after dropping by 0.6% in January and 0.1% in December.
"Those numbers this morning would have shown some economic strength and it did for a short while, giving the stock market a boost before it tumbled," the Texas trader said. "Treasuries are the big story today with the unexpected firming there."
Long-term issuance as of Wednesday was $9.03 billion, according to Thomson Reuters data, the largest weekly slate of bonds so far this year.
The largest deal in the negotiated market Thursday is $692.9 million of Houston Combined Utility System bonds. The issue consists of first lien revenue refunding bonds rated AA by Standard & Poor's and Fitch Ratings.
Yields on the Houston deal, led by Siebert Brandford Shank & Co., ranged from 0.19% with a 2% coupon in 2015 to 3.38% with a 5% coupon in 2028. The bonds are callable at par in 2024.
JPMorgan Securities led a separate Houston deal for the same issuer, $606 million of taxable bonds with maturities from 2015 to 2028.
Also in the negotiated market, Connecticut was scheduled to price $400 million of general obligation bonds for institutions. Bank of America Merrill Lynch first offered the bonds to retail investors through a two-day order period that began on Tuesday.
The sale includes $300 million of GOs maturing in 2034, and $100 million of Securities Industry and Financial markets Association index bonds maturing in 2023.
Citigroup Global Markets won the bid for Wednesday's issuance of Sequoia Union High School District, Calif.'s $105.8 million general obligation bonds. Yields ranged from 0.10% with a 2% coupon in 2014 to 3.93% with a 4% coupon in 2035. The AA rated bonds are callable at par in 2024.
Municipal bond yields were as much as four basis points lower on long-term bonds, according to Municipal Market Advisors.
Treasury yields fell across the board in the afternoon after remaining firm earlier, with the 30-year benchmark yield dropping eight basis points to 3.59%. The 10-year yield fell the same amount to 2.65%. Two-year notes were two basis points lower at 0.35%.
