The municipal bond market ended weaker for a second straight session Thursday as lower-rated credits took the brunt of the selloff, playing catch-up to the Treasury selloff after the release of the Federal Open Market Committee meeting minutes.
Lower prices came as deals in the primary saw mixed reception this week. Some traders said high-yield credits, like double-B rated Guam Waterworks Authority which was 15 times oversubscribed, were well received while $1.78 billion Jefferson County and lower-rated hospital bonds cut prices.
“Munis outperformed Treasuries on Wednesday but today we whipsawed,” said Tom DeMarco, fixed income strategist at Fidelity Capital Markets. “Munis are playing catch-up to the Fed selloff in Treasuries and things have been weaker throughout the day.”
One New York trader said the market was weaker and “I’ve gotten pretty bad bids on my bonds,” he said. “I think it’s a delayed reaction to Wednesday too when munis didn’t weaken as much as Treasuries. But I think now it’s stabilizing.”
DeMarco said competitive deals throughout the week were well bid. “It appeared insurance companies and banks have been in pretty strong on the long end,” he said.
With most of the new deals issued earlier in the week, the last remaining deal over $1 billion took all the attention on Thursday. Wells Fargo priced for institutions $1.5 billion Port Authority of New York and New Jersey bonds, following a retail order period Wednesday.
The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields on the first series of $473.6 million of bonds subject to the alternative minimum tax ranged from 0.20% with a 3% coupon in 2014 to 5.05% with a 5% coupon in 2043. The bonds are callable at par in 2023. In repricing, yields were lowered as much as seven basis points after being raised one to three basis points on selective maturities between 2023 and 2038 from retail pricing.
Prices were attractive on bonds maturing beyond 10 years on the series subject to the AMT, DeMarco said. Bonds maturing in 2033 were priced 100 basis points off Wednesday’s MMD scale which was “fair for AMT bonds.”
Yields on the second series of $917.3 million ranged from 0.17% with a 3% coupon in 2014 to 4.62% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered one basis point each from retail pricing on bonds maturing in 2015 and 2016 but raised one to two basis points on bonds maturing between 2022 and 2029.
Yields on the third series of $109.2 million ranged from 0.13% with a 3% coupon in 2014 to 2.49% with a 5% coupon in 2021.
In the secondary, DeMarco said bid lists have been steady, though not excessive, throughout the week.
On Thursday, high grade bonds were cheaper following a drop in prices in the high-yield market.
“Everything is getting cheaper in sympathy,” a Chicago trader said, adding the high-grade market was four to five basis points weaker. High-yield munis were even lower.
Trades compiled by data provider Markit showed weakening.
Yields on San Antonio Electric & Gas 5s of 2025 jumped six basis points to 3.14% and Massachusetts College Building Authority 5s of 2028 increased four basis points to 3.66%.
Yields on California 5s of 2027 rose three basis points to 3.85% and Wisconsin 5s of 2020 rose two basis points to 2.01%.
Yields on New York’s Metropolitan Transportation Authority 5s of 2043 increased two basis points to 4.97% and Dallas Fort Worth International Airport 5s of 2035 rose one basis point to 5.31%.
On Thursday, the triple-A Municipal Market Data scale ended as much as four basis points weaker. The 10-year and 30-year yields rose four basis points each to 2.66% and 4.16%, respectively. The two-year closed unchanged for the sixth session at 0.33%.
Yields on the Municipal Market Advisors benchmark scale ended as many as four basis points higher for a second straight session. The 10-year yield rose three basis points to 2.72% and the 30-year yield climbed four basis points to 4.37%. The two-year was steady for the fourth session at 0.38%.
Treasuries reversed morning losses to end stronger Thursday. The benchmark 10-year yield fell one basis point to 2.79% and the 30-year yield dropped two basis points to 3.89%. The two-year was steady at 0.28%.
For the week through Wednesday, retail activity picked up to its highest level in at least five weeks, according to BondDesk Group, which tracks trades of under 100 bonds.
Customer buy trades totaled 80,118 for the week ending Nov. 20, up from the previous week’s 63,178 and the highest since at least Oct. 23.
Customer sell trades rose to 36,534, up from the past week’s 36,534 and the highest since at least Oct. 23.
The buy to sell trade ratio rose to 2.2 from 2.1, coming short of the high of 2.3 reached the week ending Nov. 6.
In par value traded, investors bought $2.094 billion, up from the previous week’s $1.599 billion and the highest in five weeks.
Customers sold $1.016 billion, up from the past week’s $809 million and the highest in at least five weeks.
The buy to sell ratio rose to 2.1 from 2.0, but fell short of the 2.2 reached the week ending Nov. 6.
