The tax-exempt market ended steady to stronger Thursday following Wednesday’s gains.
Traders said declining Treasury yields and limited supply pushed muni yields slightly lower. Still, market participants noted that demand appeared strong only because supply has been relatively light.
“It’s steady to firmer, with Treasuries more so than munis,” a San Francisco trader said. “Munis are OK but less buoyant than Treasuries. I wouldn’t be surprised to see slight decoupling between Treasuries and munis.”
He added the market is lagging a bit because the 10-year Treasury yield continues to hover around the 2.00% level. “We are still too close to that level. There is momentum in equities and confusion in debt.”
Still, the supply-demand factor continues to support munis. “It was a little light in supply this week,” the trader added. “There is hope and additional consideration for a little bump in refundings due to the SLGS window opening up again. But we haven’t seen a surge in the calendar.”
Until supply increases substantially, munis should hold steady. “Muni demand is still significantly greater than supply so munis are not likely to fall out unless you get surge of supply. The demand is there, but the willingness to execute is waning due to uncertainty with the debt ceiling.”
Other traders agreed the market was stronger, but activity this week felt light. “It’s a little stronger today,” a New York trader said. “You can hold your bid and people are hitting that. I came down an eighth of a tick to get some flow going but for the most part people are holding tight on prices. But there is not a whole lot going on. It’s definitely flat to up slightly but your justification is only from a few trades that have gone on.”
He added that activity has been relatively muted all week. “It’s been a quiet week. There are a few bits and pieces but it’s very spotty. There are large gaps in between trades.”
While the focus has been on the secondary market for most of the week, the few primary deals that hit the market were well received. “Deals are definitely being received well and people are hungry for paper at the right levels,” the trader said. “But there are a few deals that sat out there with the same names and the same offerings in the last few weeks. We could use another big deal to swoop in.”
“The new issues this week have been well received and there was an uptick in trading volume as more participants engaged,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “Still a large portion of trades occurring are dealers taking inventory as roughly two-thirds of the trades were dealer buys or interdealer trading. Without firm going away orders the market will remain more volatile.”
In the new-issue market Thursday, Santa Clara County, Calif., was expected to auction $490 million of general obligation bonds, but the deal was postponed.
“The County of Santa Clara postponed the sale of their $490 million general obligation bonds until Wednesday, Feb. 20 in order to provide time to post a revised Official Notice of Sale,” Paul Knofler, debt management officer, said in a statement. “The revised Official Notice of Sale will remove the requirement that bidders pay a cost of issuance amount. We expect to receive more bids as a result of this change.”
Citi won the bid for $215.8 million of Virginia Public Building Authority revenue bonds, rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch.
Yields ranged from 0.25% with a 4% coupon in 2014 to 2.02% with a 5% coupon in 2023. The bonds are callable at par in 2023.
In the primary market Thursday, JPMorgan priced $170.5 million of Michigan Finance Authority state revolving fund revenue bonds, rated AAA by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $139.1 million of clean water revolving fund subordinate refunding bonds, ranged from 0.16% with a 2% coupon in 2013 to 2.30% with a 5% coupon in 2026. The bonds are callable at par in 2022.
Yield on the second series, $31.4 million of drinking water revolving fund subordinate refunding bonds, rated from 0.17% with a 1% coupon in 2013 to 2.30% with a 5% coupon in 2026. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed mostly stronger trades.
Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.75s of 2034 and Port Authority of New York and New Jersey 4s of 2032 fell three basis points each to 6.94% and 3.49%, respectively.
Yields on California 5s of 2042 and Crosby, Texas, Independent School District 4s of 2023 dropped two basis points each to 3.28% and 2.04%, respectively.
Municipal bond market reads showed steady to stronger trading Thursday for the second consecutive session.
Yields on the Municipal Market Data triple-A GO scale finished one basis point lower. The 10-year fell one basis point to 1.80%. The 30-year yield held flat at 2.86% for the third session while the two-year closed at 0.34% for the ninth straight session.
The Municipal Market Advisors 5% coupon triple-A benchmark scale also showed steady to lower yields. The 10-year yield and the 30-year yield fell one basis point each to 1.83% and 2.94%, respectively. The two-year closed unchanged at 0.35% for the ninth consecutive session.
Treasuries were stronger for the second straight session. The benchmark 10-year yield and the 30-year yield fell one basis point each to 1.96% and 3.17%, respectively. The two-year was steady at 0.26%.