The tax-exempt market ended the day flat and activity was light, even after Treasuries rallied on a worse-than-expected manufacturing number.
Bank of America Merrill Lynch priced about $1 billion of Massachusetts bonds for retail investors following a first retail pricing Friday. Institutional pricing is expected Tuesday. Though yields were raised from Friday’s levels, traders said the market felt stronger by the afternoon.
“Yields are a bit lower but I haven’t seen much change in activity,” a New York trader said.
The $957.7 million of Massachusetts bonds are rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Bonds on the first series, $400 million of general obligation bonds, were priced at par to yield 4% in 2043. Portions of bonds maturing between 2039 and 2043 were not offered for retail. The bonds are callable at par in 2021. Yields were raised five basis points on the 2043 maturity from Friday’s retail pricing.
Bonds on the second series, $100 million of GO green bonds, yielded 3.85% with a 3.75% coupon and 3.67% with a 4% coupon in a split 2033 maturity. Portions of bonds maturing in 2022 were not offered for retail. The bonds are callable at par in 2021. Yields were raised five basis points from Friday’s retail.
Yields on the third series, $457.7 million of GO refunding bonds, ranged from 0.64% with 4% and 5% coupons in a split 2016 maturity to 2.39% with 3% and 5% coupons in a split 2023 maturity. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2023. Yields were raised between five and eight basis points from the first pricing.
The large Massachusetts deal comes as overall issuance is up this week. The markets can expect $5.64 billion, up from last week’s revised $2.47 billion. In the negotiated market, $4.46 billion is expected to be issued, up from last week’s revised $1.64 billion. On the competitive calendar, $1.18 billion should be auctioned, up from last week’s revised $826.5 million.
Outside the primary, a secondary trader said the market was quiet. “It’s slow again,” a New York trader said, adding the market was flat.
Trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Michigan Tobacco Settlement Financing Authority 5.125s of 2022 jumped seven basis points to 6.07% and Connecticut Health and Educational Facilities Authority 5s of 2042 increased five basis points to 1.73%.
Yields on California 7.625s of 2040 and Michigan State University 5s of 2041 rose two basis points each to 4.69% and 3.49%, respectively.
Other trades were stronger. Yields on Georgia’s Private Colleges and Universities Authority 5s of 2027 slid two basis points to 2.45%.
Yields on New York City Transitional Finance Authority 5s of 2029 and Lee County, Fla., Tourist Development 4s of 2043 fell two basis points each to 3.10% and 4.13%, respectively.
Monday, the Municipal Market Data scale flattened. The two-year yield increased one basis point to 0.30% and the 10-year yield fell one basis point to 2.08%. The 30-year was steady at 3.24%.
The Municipal Market Advisors 5% scale ended steady across the curve. The 10-year and 30-year yields finished unchanged at 2.14% and 3.34%, respectively. The two-year finished steady at 0.36% for the fourth session.
Treasuries ended Monday stronger following worse-than-expected economic data. The benchmark 10-year yield and the 30-year yield slid three basis points each to 2.13% and 3.27%, respectively. The two-year was steady at 0.31%.
The Institute for Supply Management index slipped to 49.0 in May from 50.7 in April, falling below the 50.5 level expected by economists.
“According to the survey data compiled by the ISM, manufacturing activity in May posted a surprising but modest contraction with both orders and production declining,” wrote economists at RDQ Economics. “This is the weakest reading on manufacturing growth according to this survey in the recovery. We are not, however, changing our forecast for a 225,000 increase in private payrolls in May and we note that the employment index was little changed in May at 50.1.”
In fixed income news, Atlanta Federal Reserve President Dennis Lockhart said Monday afternoon the U.S. economy is slowly improving and a “downward adjustment” of the quantitative easing policy is appropriate.
“That’s not to say the June meeting, but we are approaching a period in which it can be seriously considered based upon sort of the momentum of the economy which is not great but nonetheless is moving forward and based upon accrediting confidence in the economy,” Lockhart said.
