Cuyahoga County, Ohio, sold $230.9 million of certificates of participation to finance a Hilton Hotel at the Cleveland convention center, in a deal that provided the muni market with a bit of much needed yield.
Stifel Nicolaus Thursday priced the bonds at yields ranging from 0.90% with a 5% coupon maturing in 2017 to 4.375% at par in 2044.
"It looks alright; there are a lot of discounts," a New York trader said. "Discounts behind the 4% bring retail interest. There's a ton of cash looking to be invested in the June/July season. This deal being a COP convention center, buyers are going to want more yields. It did pretty well. It looks attractive."
Some market participants found the higher incremental yields in the long-end of the curve to be more attractive than others did on the high rated deal.
"It's mildly attractive," a second New York trader said. "The long end I don't like though. There are cheaper yields then they would have had last week. It looks like they cut the scale on the long end."
The deal received an Aa3 rating from Moody's Investors Service and an AA-minus from Standard & Poor's. The deal is callable at par in 2024.
The bulk of issuance came earlier in the week leaving Thursday's market supply light with only one negotiated deal for more than $100 million entering the market.
"Volume is surely low," a West Coast trader said. "Most of the deals came earlier in the week. It's somewhat of a holiday-shortened week so there's nothing that's going to add to the balance of the week."
The first New York trader said he'd seen some yield compression for higher rated deals. "Some of the deals that struggled were high grades like Connecticut and Missouri."
There were no deals over $100 million scheduled to enter the competitive market Thursday.
Municipal bonds weakened slightly Thursday, following Treasuries, with low issuance continuing to plague the market and a holiday-shortened week approaching.
"Munis have softened," a trader based in Chicago said. "There's been talk about a 30-day supply pick up, but it doesn't look like it's happened. It could be that people are taking a deep breath ahead of a holiday weekend."
Muni yields on the intermediate and long part of the curve climbed one basis point. The short-end of the curve held steady, according to the Municipal Market Data's triple-A scale.
Yields for two-year and 10-year municipal bonds held steady at 0.19% and 2.21%, according to Municipal Market Advisors. They increased by one basis point to 3.48% for the 30-year.
Light volume has been an ongoing trend in the municipal market this year, one that may not let up any time soon.
Janney predicts issuance will decrease in 2014 from 2013 and will continue to drop in the next one to three years, though demand for municipal bonds is strong, making the current environment ideal for issuers.
"There is an appetite out there for municipal bonds," a trader in New York said. "Rates are favorable to bring issues to market."
New money issuance is significantly down so far this year, and would project at $133 billion for the year, according to the Janney Municipal Bond Market Monthly report. Though issuance has been off since 2011, volume hasn't hit these levels since 1997.
"It's typical [to see less issuance] when rates come down as they have, 100-plus basis points," the Chicago trader said. "Refunding deals are coming to market because economics make sense. There will be more refunding if this environment continues."
Some of the factors contributing to this steady decline of supply include: "higher interest rates, use of direct bank loans, austerity measures, less flexibility in spending, political and voter attitudes, and the lack of broad public policy supporting infrastructure spending," according to Janney.
"There are a lot of factors that are contributing to this low supply environment and will continue in the short term," the Chicago trader said. "In regard to high yield, bank participation, direct loans and states not borrowing enough are a part of it."
Treasuries weakened Thursday, with 30-year yield and the two-year note slipping one basis point each to 3.43% and 0.36%, respectively. The 10-year benchmark rose one basis point to 2.55%.
"Treasuries are a bit off causing the market to weaken," a trader on the West Coast said. "It's a combination of a rally that went too far too fast and sticker shock. The levels are getting too high and buyers are starting to balk a bit. Issues are struggling to get placed. The market is starting to consolidate."
Secondary market trading showed weakening, according to data provider Markit. New York Metropolitan Transportation Authority revenue bonds with a 5% coupon maturing in 2043 climbed one basis point in yield to 3.99%, while the yield on New Jersey Transportation Trust Fund Authority bonds with a 5% coupon maturing in 2042 jumped a basis point to 4.06%.
Massachusetts consolidated GOs with a 5% coupon maturing in 2041 and California various purpose GOs with a 5% coupon maturing in 2043 rose one basis point each to 3.25% and 3.75%, respectively.
