NEW YORK – The tax-exempt market ended Thursday on a stronger note after a week of steady to firmer yields.

Traders said big deals in the primary market were well received and lowered yields in repricings. But smaller deals didn’t receive the same reception.

“Illinois was priced cheap but did very well,” a New York trader said, referring to the $1.8 billion deal priced by Jefferies & Co. “Bid sides are up at least 10 basis points from where the deal came Tuesday across the curve.”
Outside that deal, the trader said the market was close to flat. “A few dealers are lightening up a tiny little bit but nothing crazy. The 30-day visible has ticked up to almost $10 billion.”
Other market participants said smaller deals weren’t doing as well as the larger ones. “I am seeing a fair amount of repricing higher on yields on some of these smaller deals I’ve been looking at,” a Minnesota portfolio manager said, referring to several $10 million to $12 million deals that came to market this week. “I am seeing more change on the long end.”

He added deals are also being restructured. “Coupons are moving down to 3% to appease retail or moving up to 5% for the institutional guys.”

Still, munis were firmer again Thursday, according to the Municipal Market Data scale. Yields inside 11 years were steady while yields outside 12 years fell between one and three basis points.

The two-year yield closed flat at 0.31% for the 12th consecutive trading session while the 10-year also finished steady at 1.85%. The 30-year fell three basis points to 3.19%.

Treasuries finished mixed on Thursday. The two-year yield fell one basis points to 0.27% while the benchmark 10-year yield rose one basis point to 1.93%. The 30-year yield finished steady at 3.11%.

In the primary market, JPMorgan priced $168.4 million of Connecticut Housing Finance Authority housing mortgage finance program bonds, rated triple-A by Moody’s Investors Service and Standard & Poor’s.

Bonds had coupons ranging from 0.17% in 2012 to 3.55% in 2032. Prices were not available by press time.

Morgan Stanley priced and repriced $152.3 million of Orange County, Fla., Health Facilities Authority hospital revenue bonds, rated A2 by Moody’s and A by Standard & Poor’s and Fitch Ratings.

The bonds yield 4.125% with a 4% coupon in 2028, 4.273% with a 4.125% coupon in 2032, and 4.45% with a 5% coupon in 2042. Yields were lowered two basis points from preliminary pricing. The bonds are callable at par in 2022.

In the secondary market, muni yields all fell in a sample of CUSIPs compiled by data provider Markit.

Yields on Pennsylvania State Higher Educational Facilities Authority 5s of 2042 dropped six basis points to 3.86% while Dormitory Authority of the State of New York 5s of 2021 fell four basis points to 2.53%.

Yields on Florida State Board of Education 4s of 2023 and Minnesota 5s of 2020 each fell three basis points to 2.47% and 1.59%, respectively. Yields on Connecticut 5s of 2026 and Wisconsin 4.5s of 2030 each dropped two basis points to 2.61% and 3.13%.

Not only are individual bonds performing well, but municipal exchange traded funds are also outperforming their peers. Year to date, the iShares S&P National AMT-Free Municipal Bond Fund – ticker MUB – has returned 1.96%, beating both the iShares iBoxx High Yield Corporate Bond ETF – ticker HYG – which returned 1.79% and the ProShares Ultra Seven to 10 Year Treasury ETF – ticker UST – which returned 1.35%.

It came short of the iShares IBoxx Investment Grade Corporate Bond Fund ETF – ticker LQD – which returned 2.29% so far this year.

For the week, MUB outperformed most of its peers, returning 0.15% so far in May while the HYG returned 0.02% and the LQD returned negative 0.16%. The UST outperformed the MUB, returning 0.25% this week.

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