Market Close: Losses Persist As Spreads Widen In Light Bidding

The tax-exempt market posted losses for a fourth consecutive trading session as some of the largest deals of the week in the primary came with concessions and secondary bid-ask spreads widened.

In the primary market, dealers had to raise yields to entice buyers, but one New Jersey trader said yields are still too low, especially compared with secondary market transactions. “I don’t like the new issues,” he said. “They aren’t cheap enough yet. I thought they would be cheaper.”

Dealers weren’t as aggressive in the competitive market Wednesday. “There is lighter bidding in the competitive and spreads and cover bids are wider,” a Los Angeles trader said. “Dealers are less excited to jump in.”

In the secondary market, munis appeared to be stabilizing after a big selloff Tuesday. “Tuesday was a dysfunctional day when we lost eight basis points but today feels more in line with the Treasury market,” the L.A. trader said. “It feels like we are searching for the bottom and maybe we’re finding it. On a net basis, today feels better and hopefully we are finding a level.”

Some said the market was still fairly illiquid and bids-wanted weren’t translating into trades. “There is a bid but no one wants to hit the bid because the bid-ask spread is so wide,” the New Jersey trader said.

Spreads have been widening as buyers are hesitant to put money to work until more outflows hit the market and yields rise further. “Clients are slowly trickling out of funds, but when the news hits mass media, those funds will see huge redemptions. We haven’t had that yet.”

Bond maturing in seven years are getting the most order flow, the L.A. trader said. “The long end is also getting business because yields are high and the short-term one-year paper is priced aggressively. But the toughest is the belly of the curve. The 24- to 29-year range is thin.”

Loop Capital Markets priced for institutions $800 million New York City Transitional Finance Authority future tax secured subordinate bonds. The TFA bonds are rated Aa1 by Moody’s Investors Service and triple-A by Standard & Poor’s and Fitch Ratings.

Yields ranged from 0.63% with 3% and 4% coupons in a split 2016 maturity to 4.18% with a 4% coupon in 2043. Credits maturing in 2015 were offered in a sealed bid. The bonds are callable at par in 2023.

Yields were raised between three and 17 basis points in institutional pricing, with the biggest increase in yields on the 2021, 2022, 2023 2028,and 2033 maturities. Yields had already been raised as much as 10 basis points from the first retail pricing Monday.

Bank of America Merrill Lynch priced for institutions $549 million Massachusetts School Building Authority senior dedicated sales tax bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Yields ranged from 0.67% with a 4% coupon in 2016 to 4.07% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields on bonds maturing in 2016 were lowered one basis point from retail pricing Tuesday. Yields on bonds maturing between 2019 and 2038 were raised between five and 12 basis points.

In the competitive market, B of A Merrill won the bid for $232.6 million San Francisco general obligation bonds, rated Aa1 by Moody’s and AA by Standard & Poor’s and Fitch.

Yields on the first series of $72 million ranged from 0.18% with a 4% in 2014 to 4.25% with a 4% coupon in 2033. The bonds are callable at par in 2021.

Yields on the second series of $31 million ranged from 0.18% with a 4% coupon in 2014 to 4.25% with a 4% coupon in 2033. The bonds are callable at par in 2021.

Yields on the third series of $129.6 million ranged from 0.18% with a 4% coupon in 2014 to 4.25% with a 4% coupon in 2033. The bonds are callable at par in 2021.

JPMorgan priced $114 million triple-A rated Rice University taxable higher education revenue refunding bonds. The bonds were priced at par with a 4.626% coupon in 2063. The bonds were priced 130 basis points above the comparable Treasury yield.

In the secondary market, trades compiled by data provider Markit showed weakening.

Yields on Pennsylvania Turnpike Commission 5s of 2043 and Hillsborough County, Fla., Industrial Development Authority 5s of 2034 jumped four basis points each to 4.31% and 4.35%, respectively.

Yields on California Public Works Board 5s of 2027 and New York’s Metropolitan Transportation Authority 5s of 2027 rose three basis points each to 3.80% and 3.69%, respectively.

Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 and Palm Coast, Fla., Utility System 4.125s of 2031 increased two basis points each to 7.15% and 4.29%, respectively.

Yields on New York State Thruway Authority 4.125s of 2042 rose one basis point to 4.20%.

Wednesday, yields on the Municipal Market Data scale ended as much as six basis points higher. The triple-A two-year and 10-year yields rose one basis point each to 0.31% and 2.27%, respectively. The 30-year yield increased three basis points to 3.52%.

Muni yields on the Municipal Market Advisors 5% scale closed as much as four basis points higher. The 10-year yield climbed three basis points to 2.33% and the 30-year yield rose four basis points to 3.61%. The two-year ticked up one basis point to 0.39%.

Treasuries weakened throughout the session Wednesday. The benchmark 10-year and 30-year yields increased four basis points each to 2.23% and 3.37%, respectively. The two-year was steady at 0.33%.

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