The tax-exempt market ended flat on Tuesday as many of the week’s big deals started to price. Traders noted that focus also turned to the secondary market where some bonds were trading cheaper.
Still, there was ample primary demand as yields on several new-issues were lowered in repricings.
“We don’t like the value in new deals,” a San Francisco trader said. “We like 5% coupons or better and a lot of stuff coming are not 5% coupons. We also like shorter calls. So we are looking mostly in the secondary where you can buy shorter calls, get paid a little, and get an extra kick.”
He added that in the secondary market Tuesday, there was a little action. “We are seeing the same stuff trade at good levels and the bad stuff cheapening up. It’s a little weaker but there is not a lot of give on the other side.”
A second trader said participants were hitting bids in the secondary and so bonds did not have to be cut too much. “Munis are down a smidge,” a New York trader said. “Some people are hitting bids, but it’s nothing too exciting. There is no use cutting bonds a ton if there’s no bid.”
Munis ended steady Tuesday, according to the Municipal Market Data scale. The 10-year yield ended flat at 1.86% for the eighth consecutive trading session while the two-year ended steady at 0.32% for the 18th straight session. The 30-year yield finished flat at 3.16% for the third session.
Treasuries were weaker Tuesday after a stronger session Monday. The benchmark 10-year yield jumped three basis points to 1.64% while the 30-year yield increased two basis points to 2.71%. The two-year yield rose one basis point to 0.32%.
In the primary market, Citi priced for institutions $1.14 billion of New York State Thruway Authority general revenue bonds, rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s.
In repricing, yields ranged from 0.85% with 3% and 4% coupons in a split 2015 maturity to 4.29% with a 4.125% coupon and 4.01% with a 5% coupon in a split 2042 maturity. Credits maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2022. Yields were lowered as much as six basis points from preliminary pricing Tuesday morning and as much as nine basis points from retail pricing Monday.
JPMorgan completed the pricing of $196.6 million of Texas A&M University System Board of Regents bonds, backed by the triple-A rated Permanent University Fund. On Tuesday, $70.8 million of tax-exempt refunding bonds were priced following a $125.8 million taxable issue Monday.
Yields on the $70.8 million of tax-exempt bonds ranged from 1.48% with 4% and 5% coupons in a split 2019 maturity to 2.44% with a 5% coupon in 2024. The bonds are callable at par in 2022.
Yields on the $125.8 million of taxable bonds ranged from 0.579% priced at par in 2014 to 3.575% priced at par in 2032. Credits maturing in 2013 were offered via sealed bid with a 2% coupon. Spreads ranged from 28 basis points to 140 basis points above the comparable Treasury.
Morgan Stanley priced and repriced $133.3 million of South Carolina’s Spartanburg Regional Health Services District hospital refunding revenue bonds, rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch Ratings.
Yields ranged from 1.01% with a 3% coupon in 2014 to 4.42% with a 5% coupon in 2037. Credits maturing in 2013 were not formally re-offered. The bonds are callable at par in 2022. In repricing, yields were lowered between two and six basis points on the very short end and long end of the curve. Yields in the belly were unchanged from preliminary pricing.
In the competitive market, Seattle auctioned $350.7 million of municipal light and power improvement revenue bonds in three pricings — including $298.3 million, $9.4 million, and $43 million. The bonds are rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Citi won the bid for $298.3 million. Yields ranged from 0.22% with a 2% coupon in 2013 to 4.00% priced at par in 2041. The bonds are callable at par in 2022.
Wells Fargo Securities won the bid for $43 million of taxable bonds. Yields ranged from 3.10% with a 3.4% coupon in 2028 to 3.65% with a 3.75% coupon in 2033.
JPMorgan won the bid for $9.4 million. Details were not yet available.
Wells Fargo won the bid for $215.9 million of triple-A rated Metropolitan Council of Minneapolis-St. Paul Metropolitan Area taxable GO wastewater revenue refunding bonds. Yields ranged from 0.25% priced at par in 2013 to 2.10% priced at par in 2022. Credits maturing in 2016 were not formally re-offered.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening.
Yields on Shelby County, Tenn., 5s of 2021 jumped five basis points to 1.93% while Connecticut 5s of 2021 rose four basis points to 2.04%. Yields on San Francisco Public Utilities Commission 5s of 2034 and Louisiana 5s of 2024 each rose two basis points to 3.49% and 2.56%.
Other trades showed firming. Yields on Dormitory Authority of the State of New York 5s of 2020 dropped five basis points to 1.96% while Illinois 5.1s of 2033 fell two basis points to 5.54%.
Due to the high volume of refundings that hit the primary market during the first half of this year, some firms are revising forecasts for 2012 issuance. RBC Capital Markets said it had originally projected full year 2012 issuance would reach $340 billion, but is now increasing its estimate to $365 billion. “Because of greater than anticipated refunding volume, issuance in the first half of 2012 exceeded our expectations by approximately $15 billion,” wrote Chris Mauro, head of municipals strategy at RBC. “Assuming the issuance pattern of the first six months of 2012 continues for the remainder of the year, we now anticipate that total new volume will reach $365 billion.”
