The tax-exempt market managed to end Wednesday on a steady note, allowing the market to take a small breather after what has been a two-week collapse in municipal bond prices.
Since hitting record low yields on Nov. 28, muni yields have soared almost 40 basis points on the long end. That streak took a small pause as traders said the selloff seemed less frantic Wednesday.
While many primary deals have been postponed this week due to market conditions, some deals have priced, albeit at major concessions.
"There are deals in Texas that have gotten done this week but at adjusted levels and probably wider spreads to the Municipal Market Data scale than you would normally think," said Pete Stare, an underwriter at FirstSouthwest. "There are probably a larger portion of balances on deals coming to market."
He added the recent selloff can be attributed to a combination of several factors. "The last two weeks have seen over $10 billion in new issuance and the buy side basically said they aren't paying these levels anymore. And we're getting down to the year-end and guys are taking the bid-side lower than they want to just to lighten positions."
Traders said the selloff flurry had calmed somewhat. "It doesn't feel quite as crazy as it has been," an Atlanta trader said. "I know the bids are weak but it doesn't seem to be dramatic so far. It's probably going to stay a touch weaker until we get a good boost in govies and figure out what's going on in Washington, but people are actually calling in and bidding on my bonds. I haven't seen that in a while."
He added the market is not too optimistic and still feels weaker, but bonds may not see cuts as big as in previous days. "Generally it seems to have a little more foundation, but no one is grabbing for bonds."
One market participant said liquidity will only get worse as the end of the year approaches. "Retail structured paper is best trading right now, as many institutional investors are pulling back and/or selling," said Dan Toboja, vice president at Ziegler Capital Markets. "With the holiday-shortened weeks fast approaching there are really only a couple trading days left when desks will be fully staffed. The challenging liquidity may continue into next week as desks begin thinning staff."
In the primary market, Jefferies & Co. was expected to price about $650 million of Metropolitan Transportation Authority's Triborough Bridge and Tunnel Authority senior and subordinate revenue bonds.
The Authority postponed the deal until next year. It was originally expected to come to market last week and delayed due to market conditions. A spokesman for the Authority said the market was not digesting new issues and the Authority is waiting for better conditions. A final date has not yet been set.
JPMorgan delayed a planned the pricing of $162 million of Hillsborough County, Fla., Industrial Development Authority hospital revenue refunding bonds. Bank of America Merrill Lynch put off a $118 million of Oklahoma Municipal Power Authority power supply system revenue bond deal. Both underwriters declined to comment.
Morgan Stanley delayed the pricing of $230.5 million of Massachusetts SIFMA index bonds. A spokeswoman for Morgan Stanley did not return a call seeking comment.
To be sure, one underwriter forged ahead with pricing. JPMorgan priced $302.3 million of Bon Secours Health System Obligated Group composite issue revenue bonds. The bonds are rated A3 by Moody's Investors Service and A-minus by Standard & Poor's and Fitch Ratings.
Yields on the first series, $39.1 million of City of Russell, Ky., revenue bonds, ranged from 1.64% with a 4% coupon in 2015 to 3.85% with a 5% coupon in 2026. The bonds are callable at par in 2022.
Yields on the second series, $184.9 million of South Carolina Jobs-Economic Development Authority economic development revenue bonds, ranged from 1.64% with a 4% coupon in 2015 to 3.97% with a 5% coupon in 2029. The bonds are callable at par in 2022.
Bonds in the third series, $58.3 million of Economic Development Authority of Henrico County, Va., revenue bonds, yielded 1.94% with a 4% coupon in 2016 and 4.00% with a 5% coupon in 2030. The bonds are callable at par in 2022.
Yields on the fourth series, $20 million of Economic Development Authority of Norfolk, Va., revenue bonds, ranged from 2.90% with a 5% coupon in 2027 to 4.00% with a 5% coupon in 2030. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed weakening, albeit less so than in previous sessions.
Yields on New York City Municipal Water Finance Authority 5s of 2047 and Washington Health Care Facilities Authority 5s of 2033 jumped three basis points each to 3.37% and 3.62%, respectively.
Yields on Pennsylvania 5s of 2023 rose two basis points to 2.16%. Yields on San Francisco Public Utilities Commission 5s of 2024 and Illinois 5.1s of 2033 rose one basis point each to 2.18% and 5.22%, respectively.
On Wednesday, the MMD scale ended flat. The 10-year yield and the 30-year yield finished steady at 1.82% and 2.86%, respectively. The two-year finished flat at 0.31%.
Since hitting record low yields on Nov. 28, the 10-year MMD yield has jumped 34 basis points while the 30-year yield has soared 38 basis points.
Treasuries ended stronger Wednesday. The benchmark 10-year yield fell two basis points to 1.81%. The two-year and 30-year yields fell one basis point each to 0.28% and 2.99%, respectively.