The municipal market firmed up Tuesday as investors cottoned to the week’s new deals.
Two of the week’s larger negotiated deals were accelerated by a day. And the week’s largest competitive offering arrived aggressively priced, industry pros said.
Muni yields underperformed those of Treasuries, moving ratios between the two to cheaper levels, but the tax-exempt market struck a robust tone, traders said.
“The market seems stronger today, absolutely,” a trader in Los Angeles said. “With the Treasuries rally, it brought ratios back a little bit. Munis didn’t adjust that much today. It feels like new issues were very well received, especially those with size and good names.”
The primary market expects to see volume totaling $7.64 billion this week. That compares with a revised $7.44 billion last week. With all of the lingering demand, industry watchers expect the market to absorb the new supply with little difficulty.
Among new deals, JPMorgan won the week’s biggest competitive issue, $549.8 million of California various purpose general obligation refunding bonds.
The bonds are rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.22% and 0.35% with a 2.00% coupon in a split maturity in 2013 to 3.54% with a 3.50% coupon in 2032. The bonds are callable at par in 2022.
On the negotiated side of the ledger, Citi priced one day early $487.7 million of Miami-Dade County subordinate special obligation refunding bonds in two series. The bonds are rated A2 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Yields in the first series, $179.4 million, ranged from 3.08% with a 5.00% coupon in a split maturity in 2023 to 3.53% with a 5.00% coupon in 2030. There were no more orders taken for most credits maturing in 2014 through 2023, and in 2027.
Yields in the second series, $308.3 million, ranged from 3.53% with a 5.00% coupon in 2030 to 3.96% with a 5.00% coupon and 4.10% with a 4.00% coupon in multiple maturities in 2037.
There were no more orders taken for most debt maturing in 2032 and 2037. The bonds in the series are callable at par in 2022.
Wells Fargo Securities priced $378.7 million of Indiana Finance Authority hospital revenue bonds for the Community Health Network project. The bonds are rated A2 by Moody’s and A by Standard & Poor’s.
Yields range from 1.62% with a 5.00% coupon in 2017 through 4.05% with a 5.00% coupon in 2042.
There were no more orders taken for most debt maturing in 2013 through 2023, 2027 and 2028. The bonds are callable at par in 2023.
Also, Siebert Brandford Shank & Co. priced $144.7 million of Metropolitan St. Louis Sewer District Wastewater System refunding revenue bonds. The bonds are rated Aa1 by Moody’s, AAA by Standard & Poor’s and AA-plus by Fitch.
Yields ranged from 0.39% with a 3.00% coupon in 2015 to 2.71% with a 5.00% coupon in 2034. There are no more orders for credits maturing in 2016 through 2024 — except for a split maturity in 2017 — as well as for a split maturity in 2031.
Yields were lowered three basis points from Monday’s retail order period for debt maturing in 2022. The bonds are callable at par in 2022.
JPMorgan also priced $98.8 million of Tarrant Regional Water District, Texas, water revenue refunding bonds. The bonds are rated triple-A by Standard & Poor’s and AA-plus by Fitch.
Yields range from 0.20% with a 2.00% coupon in 2013 to 1.90% with coupons of 3.00% and 5.00% in a split maturity in 2022.
The low levels and limited activity in the secondary should linger for a time, analysts at Municipal Market Advisors wrote in a research report. There appears to be little impetus on their part to do any shifting prior to the U.S. elections.
This should lead to rather stable prices, solid distribution of paper in the primary market, and limited customer activity in the secondary market, MMA analysts wrote.
“These are driven by solid inflows into the mutual funds, ongoing bank purchases, and a need for all accounts to re-invest amid rapid current refunding activity,” they wrote.
“Stable yields will incur more of the last, in particular as more callable bonds roll into refunding target windows; advance refundings are also becoming more attractive.”
A trader in New York arrived at a similar conclusion. The U.S. elections and stubborn challenges in the euro zone should clip the muni market’s wings for the time being, he said.
“It’s an extremely range-bound market,” the New York trader added. “We’re going to stay in this holding pattern a bit. The election is the next market mover.
“And Europe came back a little bit on the page starting Friday of last week; there’s one eye open on Spain. We’re just in this trading range. Nothing else in the market is driving anything that you can tell by the price action.”
Traders also haven’t seen that many bid-wanteds of late. Their customers remain leery of selling, he added, because they’ve been unable to make any gains.
“Roughly 60-80% of these portfolios can’t do anything with it,” the trader in New York said. “They’d like to sell bonds, but there’s nothing to replace it with. What are they going to do, sell a 3.5 and replace it with a 3.6?”
According to one market gauge, muni yields on Tuesday were stronger between four and six years on the curve, according to the Municipal Market Data scale read. And they were two basis points lower beyond seven years.
The benchmark 10-year yield dropped two basis points to 1.72%. The 30-year yield slipped two basis points to 2.84%. The two-year held at 0.30% for the 20th consecutive trading session.
Treasuries yields ended stronger across the curve Tuesday. The benchmark 10-year yield fell four basis points to 1.76%.
The 30-year yield dropped five basis points to 2.91%. The two-year yield slipped one basis point to 0.30%.