NEW YORK – The tax-exempt market was slow Wednesday as traders noted there wasn’t enough excitement in the primary market and the secondary failed to buoy buyers.
“Overall the level is pretty lethargic today,” a Chicago trader said. “There are some things that seem to be trading but the strike zone has become a lot smaller and more defined. I don’t think there is a tremendous amount of distressed selling, but it’s certainly not constructive anymore.”
He added traders are throwing around the word “tired” to describe the market this week. “And it seems to be driven as much by external shocks as by actual supply and demand,” he said. “So it makes it hard to really get a read on what’s happening.”
Still, munis ended much weaker, according to the Municipal Market Data scale. Yields inside three years were steady while the four- to six-year yields rose one to three basis points. Outside seven years, yields jumped four to six basis points.
On Tuesday, the 10-year yield spiked up six basis point to 1.80% while the 30-year yield jumped four basis points to 3.11%. The two-year yield remained steady at 0.31% for the 21st consecutive trading session.
Treasuries were much weaker Wednesday morning but then pared losses and ended firmer for the day, partly due to the release of the Federal Open Market Committee minutes. The benchmark 10-year yield fell one basis point to 1.76% while the 30-year yield dropped two basis points to 2.92%. The two-year was steady at 0.29%.
The FOMC minutes said the forward guidance of easy monetary policy through 2014 is “subject to revision” should “significant” improvement be seen in the economy. Panelists decided to leave the forward guidance unchanged, deciding to alter it “only once they were more confident that the medium-term economic outlook or risks to the outlook had changed significantly.”
“The minutes of the April FOMC meeting echo the dovish tone of earlier this year, with several members (versus a couple in March) keeping the easing door open should the recovery lose momentum or if downside risks materialize,” wrote Sal Guatieri, senior economist at BMO Capital Markets. “The members expressed increased concern that uncertainty about the U.S. fiscal situation could lead businesses to defer hiring and investment. Recall that employment growth virtually stalled during last summer’s debt ceiling fiasco, leading to Operation Twist.”
“Nothing in the minutes changes our view on policy,” Guatieri added. “Given our outlook for modest growth and subdued inflation, we continue to expect a steady fed funds rate until the second half of 2014. More QE is possible if the downside risks unfold.”
In the municipal primary market, Mesirow Financial priced $593.2 million of Chicago general obligation bonds, rated Aa3 by Moody’s Investors Service, A-plus by Standard & Poor’s, and AA-minus by Fitch Ratings. The pricing included $308.2 million of taxable bonds and $285 million of tax-exempt bonds.
The first series, $177.8 million of tax-exempt bonds, yielded 3.40% with a 5% coupon in 2030, 3.52% with a 5% coupon in 2032, 3.59% with a 5% coupon in 2033, and 3.66% with a 5% coupon in 2034. The bonds are callable at par in 2022.
Yields on the second series $107.2 million of tax-exempt bonds, ranged from 2.17% with 5% and 4% coupons in a split 2020 maturity to 3.77% with a 4% coupon in 2032. The bonds are callable at par in 2022.
The $308.2 million of taxable bonds yielded 5.432% priced at par in 2042.
Barclays Capital priced $414.6 million of North Texas Tollway Authority system revenue refunding bonds, rated A2 by Moody’s and A-minus by Standard & Poor’s.
Yields ranged from 2.83% with a 5% coupon in 2021 to 4.49% with a 5% coupon in 2052. The bonds are callable at par in 2022.
Morgan Stanley repriced $93.1 million of Illinois Finance Authority revenue bonds for Loyola University of Chicago, rated A2 by Moody’s and A by Standard & Poor’s.
Yields ranged from 0.95% with a 3% coupon in 2014 to 4.02% with a 5% coupon in 2042. Credits maturing in 2013 were not formally re-offered. The bonds are callable at par in 2022. Yields were lowered as much as 10 basis points on the short end from preliminary pricing.
In a sample of CUSIP numbers compiled by data provider Markit, trades were much weaker. Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.875s of 2047 jumped 10 basis points to 8.00% while Denton, Texas 5s of 2030 rose five basis points to 3.07%.
Yields on Los Angeles 2s of 2021 and New Jersey Economic Development 5.5s of 2018 each rose three basis points to 2.38% and 1.55%, respectively.
But elsewhere in the secondary market, trades reported by the Municipal Securities Rulemaking Board continued to show firming over the last few trading sessions.
A dealer bought from a customer Springfield, Ill., 5s of 2023 at 3.48%, 11 basis points lower than where they traded Monday.
Bonds from an interdealer trade of Knox County, Tenn., 5.5s of 2014 yielded 0.37%, eight basis points lower than where they traded Monday.
A dealer sold to a customer New York City Transitional Finance Authority 5s of 2021 at 1.85%, four basis points lower than where they traded last week.
Bonds from an interdealer trade of Collin County, Texas, 4s of 2019 yielded 1.36%, three basis points lower than where they traded Tuesday.