The $192.16 million Dallas Fort Worth, Texas joint revenue improvement bond scheduled for pricing on Wednesday may be expensive because of the lack of supply in the market, a trader who usually purchases the Texas cities' debt said.
"We do own the name," the New Mexico trader said. "At times in the past it's come at attractive spreads, but we expect to pass because the credit spread will come to tight."
Raymond James & Associates will bring the bonds to market. They are rated A-plus by Standard and Poor's and A by Fitch Ratings.
The trader said that the recent supply-demand imbalance has caused bonds to come to market with tight credit spreads and high prices.
"I'm scanning the market in search of anything I can stomach buying in a very pricey market," he said.
Bond issuance as of April 30 this year totaled $89.34 billion, compared to $122.72 billion for the same period last year, according to data provided by The Bond Buyer and Ipreo. This lack of supply has boosted demand for the few muni bonds in the market. Municipal fund flows have been positive for the majority of this year and totaled $616.5 million last week, according to Lipper FMI.
Issuance for the month as of May 7 was $4 billion, Bank of America wrote in a report released on Monday. For the year, it was $93.4 billion, down 27.8% from a year earlier.
"This week runs into a holiday weekend, and I think people will start leaving [work] on Thursday and Friday, and volume will be lighter than people would really like," a trader in Florida said.
Deals coming to market have been priced at more aggressive levels than many traders like, and have caused some traders to opt against purchasing bonds.
"I looked at 10 deals in the primary and secondary markets, and have turned down them all, they all looked far too expensive," the trader in New Mexico said.
The $145 million New Mexico severance bonds that came to market on Tuesday were priced too high, some investors said.
J.P. Morgan Securities won the bid for the bonds and priced them with yields ranging from 0.15% with a 2% coupon in 2015 to 1.63% with a 5% coupon in 2024.
The bonds are callable at par in 2019. The bonds are rated Aa1 by Moody's Investors Service and AA by Standard & Poor's.
"The yields are weak, but [New Mexico] is always pretty weak," a trader in California said.
The other large competitive deal scheduled for Tuesday, an issue of tax anticipation notes by Dekalb County, Ga., was reduced by $24.3 million to $85.7 million.
"Deals coming to market this week are not being received well," the trader in California said.
The airport sector's performance has improved recently, and Janney Capital Markets has recently revised its outlook on the Airport sector to "stable" and expects the sector to advance going forward.
"It looks like revenues have normalized after uncertainty and stress caused first by the 9/11 attacks and subsequent stress cause by the Great Recession," Tom Kozlik, municipal credit analyst at Janney Capital Markets, wrote in a report released on Tuesday. "Additionally, we expect airport enplanements to increase as airlines continue to add flight activity."
The trader in Florida said that most airports with single-A credit ratings have performed well, and have introduced some yield to the marketplace.
The trader in California said that the Metropolitan Washington Airport Authority's bonds that came to market last week have not been trading well. The Metropolitan Washington Airport Authority issued $430 million bonds last Wednesday. The deal was reduced from $450 million, with yields 10 basis points lower.
Yields for bonds with a 5% coupon in 2053 have risen 7 basis points to 4.37% from 4.3% on Monday, according to data provided by Bloomberg.
Municipal bond yields were mixed on Tuesday with bonds maturing in four years' yields declining by one basis point, yields for 12-to 15-year maturities and 25- to 30-year maturities rising by one basis point, and yields for 16-to 24-year maturities increasing by two basis points, according to Municipal Market Data's triple-A scale.
Since the beginning of the month yields for two-year triple-A munis have fallen by four basis points to 0.34%, Yields for 10-year munis have declined 13 basis points to 2.19, while 30-year yields have dropped 17 basis points to 3.44%, according to Municipal Market Advisor data.
The AAA municipal 10 and 30 year yields have recovered 70% of losses incurred between May 1 and September 5 of last year," Municipal Market Advisors wrote in a report released on Monday.
The market has been selling off the last three days, but only by a couple basis points, according to Municipal Market Data's triple-A scale. Municipal Market Advisors reported that while yields for some maturities along the curve rose as much as three basis points, the 2-and 10-year yields held steady and the 30-year yield rose by one basis point to 3.44%.
Yields for two-year and 10-year municipal bonds held steady at 0.34% and 2.19%, according to Municipal Market Advisors. They increased by one basis point to 3.45% for the 30-year.
"No, yields rising has not been meaningful — they've only increased by a couple basis points," the trader in New Mexico said. "The yield curve has come down in recent weeks and there has been a bond grab. There is too much demand for very limited supply."
Treasuries strengthened Tuesday, with the 10-year benchmark falling four basis points in yield to 2.51% and the 30-year yield slipping one basis point to 3.38%. The yield on two-year note slid two basis points to 0.34%.
