The tax-exempt market ended the week on an unusually busy note as a still-active primary and secondary market kept traders hustling even as the weekend approached.
One Los Angeles trader said he was participating in the $1.55 billion California various purpose general obligation bond deal which held its first retail order period Friday.
“We are having just OK retail interest,” he said. “It could be huge outside of what we’re seeing but with where the deal was priced and the spread, our retail guys are more interested in the secondary.”
He added the deal wasn’t necessarily coming in too expensive, but it’s just not attractive enough to generate interest. The trader added the deal should firm up next week with the institutional order period.
“Overall thought it’s been a good week,” he said. “There just isn’t a lot of supply so deals should attract interest.”
One New York trader said the market continued to firm. “The market is better today,” he said, adding New York Metropolitan Transportation Authority bonds priced this week were trading Friday. “We are keeping busy.”
RBC Capital Markets priced for retail the $1.55 billion of California various purpose GO and refunding bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $1 billion of various purpose GOs, ranged from 0.59% with 2% and 3% coupons in a split 2014 maturity to 3.75% with a 5% coupon in 2042. Bonds maturing in 2013 were offered via sealed bid. Portions of credits maturing in 2036 and 2042 were not offered for retail. The bonds are callable at par in 2022.
Yields on the second series, $550.3 million of various purpose GO refunding bonds, ranged from 0.59% with a 4% coupon in 2014 to 2.76% with a 5% coupon in 2027. Credits maturing in 2013 were offered via sealed bid. Bonds maturing in 2025, 2026, and between 2028 and 2030 were not offered for retail. Bonds maturing between 2025 and 2030 are callable at par in 2018.
In the secondary market, trades compiled by data provider Markit showed mostly strengthening. Yields on Centre County, Pa., Hospital Authority 7s of 2046 dropped four basis points to 3.35%.
Yields on Colorado Health Facilities Authority 4s of 2026 and New Jersey Turnpike Authority 5s of 2029 fell three basis points each to 4.15% and 3.00%, respectively. Yields on Dauphin County, Pa., General Authority 5s of 2042 dropped two basis points to 4.10%.
On Friday, the 10-year Municipal Market Data yield dropped two basis points to 1.79%. The 30-year closed steady at 2.95% while the two-year finished flat 0.29% for the 41st consecutive session.
Treasuries were steady to stronger Friday. The benchmark 10-year yield dropped two basis points to 1.76%. The two-year and 30-year yields were flat at 0.27% and 2.96%, respectively.
While demand can be seen across the credit spectrum, the majority of the demand has been in the high yield sector. JR Rieger, vice president of fixed income indices at S&P Dow Jones Indices, said the S&P Municipal Bond High Yield index returned over 13.9% year to date as yields have come down 115 basis points since the beginning of the year. Alternatively, the S&P National AMT-Free Municipal Bond index has returned 5.59% year to date.
The spread between investment grade and high yield municipal bonds is 317 basis points, down 91 basis points since the beginning of the year, Rieger said.