The tax-exempt market turned its attention to the secondary market Thursday, ending a week that saw good reception in the primary and ended on a firm tone.
Given the fact that many deals in the primary were over $500 million, they were well received and many underwriters lowered yields in repricings.
“It’s kind of winding down as people get ready for the holiday,” a trader in the Southwest region said, referring to the Fourth of July holiday next Wednesday. “Most people will be half staffed next week. And so it was a pretty lack luster day compared to the last few days. We had good activity the last few days and bonds were going away in the retail order period. So the market has a good tone.”
He added that munis started to slow down Thursday afternoon. “New issues are going to be down next week and activity will be pretty slow,” he added. “With the holiday falling in the middle of the week, half the desks will take off the first part of the week and the other half will take off the second part of the week.”
What activity was left by Thursday afternoon showed stronger munis. “There are better buyers,” a New York trader said. “Buyers are upping prices a little bit.”
Still, munis were steady for the fourth consecutive session Thursday, according to the Municipal Market Data scale. On Thursday, the 10-year yield ended flat at 1.86% for the 10th trading session while the two-year ended steady at 0.32% for the 20th straight session. The 30-year yield finished flat at 3.16% for the fifth session.
Treasuries were stronger Thursday for the third session. The benchmark 10-year yield dropped five basis points to 1.58% while the 30-year yield fell three basis points to 2.67%. The two-year was steady at 0.31%.
In the primary market, Bank of America Merrill Lynch priced for institutions $1 billion of New York’s Metropolitan Transportation Authority bonds, rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings. Prices were not yet available.
In retail pricing Wednesday, yields ranged from 1.03% with 3% and 4% coupons in a split 2015 maturity to 4.07% with a 4% coupon in 2032. Bonds maturing between 2024 and 2029 were not offered for retail. The bonds are callable at par in 2022.
In the competitive market, B of A Merrill won the bid for $358.8 million of North Texas Municipal Water District revenue bonds, rated Aa2 by Moody’s and AAA by Standard & Poor’s.
Yields ranged from 0.35% with a 3% coupon in 2013 to 3.39% with a 4% coupon in 2030. Bonds maturing between 2014 and 2017, in 2018, 2019, between 2023 and 2025, in 2027, 2031, and in 2032 were sold but not available. The bonds are callable at par in 2022.
B of A Merrill also won the bid for $125 million of Colorado short-term notes, rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s. The bonds yielded 0.18% with a 2% coupon in 2013.
In the secondary market, trades compiled by data provider Markit showed mostly firming. Yields on New York State Environmental Facilities Corp. 4.75s of 2029 dropped three basis points to 1.65% while Connecticut 5s of 2025 fell two basis points to 2.61%.
Yields on Los Angeles Wastewater System 5s of 2024 and California Department of Water Resources 5s of 2020 each fell one basis point to 2.50% and 1.74%.
In other municipal bond news, after the Supreme Court ruled to uphold President Barack Obama’s health care law, the immediate impact on the municipal bond market was mixed, according to analysts at Trident Municipal Research.
“The effect on the municipal market is both direct and indirect,” the analysts wrote in a research note. “Obviously, the non-profit hospital sector is the most directly affected sector. TMR sees the ruling as a minor credit positive for the hospital sector, especially weaker credits, as it could help support the trend to more merger activity. Specifically, isolated cases hospitals with large charity care and uncollectable billings expenses may become more attractive as merger candidates for larger, more financially stable health care systems.”
But the impact on states was more indirect and varied, the analysts noted. “On one hand, states such as Texas and South Carolina, which each have over 20% of their population uninsured currently are likely to see financial pressures from increasing health care costs increase.”
Health care bonds in the market seemed not to react immediately. “The results from today’s Supreme Court decision may have been already baked into current hospital bonds assisted by the recent demand for yield,” wrote MMD’s Domenic Vonella. The MMD 30-year single-A rated hospital curve tightened from 189 basis points in October 2011 to 107 basis points in May 2012. Since then, spreads have widened out to 129 basis points as supply has outweighed demand.
“While at levels slightly wider than the recent lows it is important to note that single-A hospital spreads are still rich to recent averages,” Vonella wrote, noting the two-year average spread is 143 basis points. He also noted the single-A hospital curve rallied 60 basis points since October while the MMD single-A scale rallied only 21 basis points. “This outperformance versus the general market has some speculating that any potential for a rally from today’s decision may be priced in.”
