The tax-exempt market ended firmer Thursday, reversing four consecutive sessions of losses as inexpensively priced new deals were met with demand from buyers.
"Munis are cheap so new issues are well oversubscribed," a Chicago trader said. "You have the secondary that has stayed high and no one wants to punt. But new issues are cheap and you want to buy it. So we are on firm ground."
In the biggest example of demand, Loops Capital Markets priced $401.8 million of Dallas-Fort Worth International Airport joint revenue refunding bonds, rated A2 by Moody's Investors Service, A-plus by Standard & Poor's, and A by Fitch Ratings. Yields were lowered as much as 15 basis points from preliminary pricing.
Yields ranged from 0.48 with a 2% coupon in 2014 to 5.00% priced at par in 2033. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023 except for bonds maturing between 2022 and 2026 which are callable at par in 2021.
"At these raw rates you've seen a wider audience for bonds," the trader said. "It's not just the Wells Fargo and Pimco but the insurance companies and non-traditional buyers. We'll see more continued volatility and dealers taking less exposure. There is still a general liking for the product."
Other traders said munis outperformed Treasuries. "The new issue deals this week have been priced very attractively," a New York trader said. "And even after bumps in prices of as much as 10 basis points in some cases, they're still very attractive."
Even with a firmer tone Thursday, weakening over the past few days gave some issuers pause. Thursday, Goldman, Sachs & Co. was expected to price $425 million of Illinois State Toll Highway Authority senior revenue refunding bonds, but the underwriter moved the deal to day-to-day status.
In other primary deals, Bank of America Merrill Lynch priced $152.1 million of triple-A rated Tyler Independent School District, Texas, unlimited tax school building bonds. The bonds are insured by the Permanent School Fund Guarantee Program.
Yields ranged from 0.28% with a 2% coupon in 2014 to 4.36% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered as much as five basis points from preliminary pricing. Spreads on bonds with 5% coupons ranged from two basis points to 30 basis points above the Municipal Market Data scale.
In the competitive market, Morgan Stanley won the bid for $217 million of triple-A rated Utah general obligation bonds.
Yields ranged from 0.17% with a 5% coupon in 2014 to 3.57% with a 4% coupon in 2028. The bonds are callable at par in 2022. Bonds with 5% coupons were priced with spreads ranging from one basis point to nine basis points through the MMD scale on 2014 to 2023 maturities.
In the secondary market, trades compiled by data provider Markit showed strengthening.
Yields on Lewisville, Texas, 5s of 2027 dropped eight basis points to 3.66% and Miami-Dade County, Fla., School District 5s of 2027 fell seven basis points to 3.90%.
Yields on Massachusetts Bay Transportation Authority 5.25s of 2021 slipped five basis points to 2.54% and Wisconsin transportation 5s of 2024 fell two basis points to 3.14%.
Yields on New Jersey State Turnpike Authority 5s of 2043 and Virginia Public School Authority 4s of 2031 fell two basis points each to 4.73% and 4.16%, respectively.
Retail participation in the secondary market appeared to drop off this week, according to BondDesk Group, which tracks retail trades of under 100 bonds.
For the week ending July 10, there were 61,338 buy trades, down from last week's 84,404 and the lowest in five weeks. Sell trades dropped to 29,336 from the previous week's 34,684 and the lowest in five weeks.
The buy-to-sell ratio dipped to 2.1 from 2.4 but was the third highest ratio in five weeks.
In par value traded, there were $1.568 billion buy trades, down from the previous week's $2.181 billion. It was the lowest in five weeks. There were $760 million sell trades, down from the previous week's $906 million and the lowest in five weeks.
The buy-to-sell ratio in par value slipped to 2.1 from 2.4 and was the third highest in five weeks.
Thursday, yields on the Municipal Market Data scale ended as much as nine basis points lower. The two-year yield slid seven basis points to 0.45% and the 10-year yield dropped eight basis points to 2.67%. The 30-year yield fell five basis points to 4.01%.
Yields on the Municipal Market Advisors scale ended as much as seven basis points lower Thursday. The 10-year yield fell seven basis points to 2.85% and the 30-year yield slid four basis points to 4.12%. The two-year yield fell two basis points to 0.54%.
Treasuries were stronger Thursday. The benchmark 10-year yield slid 10 basis points to 2.58% and the 30-year yield fell six basis points to 3.63%. The two-year yield dropped three basis points to 0.34%.
Fixed income markets were in part buoyed by an unexpected rose in jobless claims for the week ending July 6. Claims rose 16,000 to 360,000, coming in above expectations of a 2,000 increase to 345,000.
"We are not in the slightest concerned at this point that the rise in claims at the beginning of July signals a slowdown in the pace of job creation," wrote economists at RDQ Economics. "The pace of job creation has been very stable at close to 200,000 new net payroll jobs per month and there is nothing here than would lead us to believe that this trend did not continue into July."
