NEW YORK – As fears over the EU Summit prevailed, muni investors continued to stay on the sidelines as yields remained unchanged through the curve. Institutional buyers remain the dominant player.
“The market is slow, but deals are getting done,” said a trader in Dallas. “Size continues to drive where the market is going and there were sure a lot of deals done today.” The trader added most deals were priced well and not a lot of bonds were reoffered.
The market has also been mostly institutionally driven, the trader added, due to absolute low yields. “There are a lot of cross over buyers and retail investors are not involved in a big way,” he said. “And with rates so low, this is typically where the attention likes to go.”
A New York trader noted the same trend, adding that the market was dominated by institutional buyers as retail wasn’t ready to jump in yet. “The institutional money is out there but the retail is not following.”
The concerns in Europe may be contributing to institutional buyers coming into the market. “At the institutional level, everyone is wondering what the postponement means for Europe, but I don’t know if that filters down to mom and pop,” the Dallas trader said.
And while many of the deals Tuesday priced well, it wasn’t enough to change the market. Muni yields were unchanged throughout the curve, with an exception of a one basis point drops in credits maturing between 2015 and 2022, according to the Municipal Market Data scale.
Tuesday, the benchmark 10-year muni yield closed at 2.42%, down one basis point from Monday. The 10-year is 45 basis points above its record low reach in September.
The two-year and the 30-year muni yields held steady. The two-year yield closed at 0.45% for the ninth consecutive trading session. The 30-year finished Tuesday at 3.72%.
The Treasury market rallied Tuesday as yields fell across the board. The two-year fell three basis points to close at 0.26%. The 10-year fell 12 basis points to close at 2.12% and the 30-year fell 14 basis points to close at 3.13%.
“Right now munis seem to have been not as strong as you might imagine given the way Treasuries moved,” said a trader in New York. “Lagging to Treasuries is normal and so my suspicions are munis will catch up over the next day or so. But so far I’m just a little surprised at how lackluster our market was.”
A Los-Angeles based trader said market participants were looking to Europe for direction. “Everyone wants to see what the outcome will be of the EU summit and if there will be a resolution,” he said, adding that the EU Summit would override any other data released. “There is still a little fear and the bond market is waiting to see if there is a resolution. That’s why trading is light.”
There has also been some talk of different proposals that could affect the value of the tax-exempt market, but talks aren’t having a huge impact on trading values as people doubt the actual ability to get things done in Washington, the trader added.
In the primary market Tuesday, competitive issues priced well. Barclays Capital won the $193.8 million Howard County, Md. deal, and MMD analyst Randy Smolik noted bonds were reoffered on two basis points through implied MMD spots and saw “very good follow-through.”
Bank of America Merrill Lynch won the $300 million Illinois issue. Yields ranged from 2.70% with a 3.00% coupon in 2018 to 3.85% with a 3.75% coupon in 2025. Credits maturing in 2013 to 2036 were sold but not available. The bonds are callable at par in 2021.
In the negotiated market, Barclays priced $439.6 million of California economic recovering refunding bonds rated Aa3 by Moody’s Investors Service and A-plus by Standard & Poor’s and Fitch Ratings. Yields ranged from 1.125% with a 4% coupon in 2016 to 1.25% with a 4% coupon in 2017.
A Los Angeles-based trader said that after the California economic recovery refunding bonds deal, trading was light in the early afternoon. “Volume is slow and the calendar isn’t too heavy,” the trader said, adding that a few interesting deals in California Tuesday also included the Catholic Healthcare West, and California Health Facilities. “Bonds are more lightly traded although the Treasury market is up.”
Bank of America Merrill Lynch priced $284.1 million of Michigan Finance Authority state revolving fund revenue bonds in two series. The bonds are rated AAA by Standard & Poor’s and Fitch.
Yields on the first series, $227.8 million of Series 2011 clean water revolving fund revenue refunding bonds, ranged from 0.55% with a 5% coupon in 2013 to 3.21% with a 5% coupon in 2024. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Yields on the second series, $56.3 million of Series 2011 drinking water revolving fund revenue refunding bonds, ranged from 0.55% with a 2% coupon in 2013 to 3.21% with a 3% coupon in 2024. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Citi priced $106.2 million of Dallas Fort Worth International Airport joint revenue refunding taxable bonds. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.
The bonds had maturities ranging from 2012 to 2018. Bonds maturing in 2012 and 2013 were offered via sealed bid. Bonds maturing from 2014 to 2018 were priced to yield between 120 and 157.5 basis points over the comparable Treasury yields.
In other economic news, the consumer confidence index declined to 39.8% in October from an upwardly revised 46.4 last month, according to The Conference Board, further contributing to nervousness in the market. Economists had estimated 46.5 for the index.
Of all respondents in October, 11% said business conditions were “good”, down from 12.1% in September. Respondents calling business conditions “bad” increased to 43.7% from 40.5%.
