The tax-exempt market continued to trade with a flat to firmer tone Wednesday, extending its streak of gains into 13 consecutive sessions.
While traders said the tone of the municipal bond market felt weaker in the morning, the market ended steady to slightly stronger by the afternoon.
“It feels flat but they are bumping scales,” a Chicago trader said, referring to the Municipal Market Data index.
“I heard there have been strong trades all day but it’s just the generic stuff getting passed from hand to hand. It was tired this morning. It’s just the same stuff recirculating. But there are some one-off deals and those trades are being received very well.”
He added the secondary market felt stale on Wednesday afternoon as the same bonds were put out to the street over the last few weeks.
“The market is kind of like a boyfriend. You see them for a few weeks and then you get sick of them.”
Other traders noted the market was trading flat by early afternoon.
“I would probably say it’s basically unchanged,” a San Francisco trader said. “I’m not seeing much that would indicate things are up, but I’m certainly not seeing anything that’s weaker.”
This trader noted there weren’t any deals in the primary. “We are mostly in the secondary because the structure there fits better. We are seeing a few things out there that have similar prices that we’ve been seeing.”
To be sure, munis appeared to follow Treasuries lower in the morning. One institutional trader said the muni market felt weaker as participants resisted the near record low yields. “The market is down a touch,” a New York trader said. “The secondary will get busy Thursday and Friday.”
In the primary market, Goldman, Sachs & Co. priced $318.2 million of Nassau Country Interim Finance Authority sales tax secured bonds, rated AAA by Standard & Poor’s and Fitch Ratings.
Yields in repricing for the first series, $142.2 million of tax-exempt bonds, ranged from 0.49% with 3% and 4% coupons in a split 2015 maturity to 2.17% with a 5% coupon in 2025. The bonds are callable at par in 2022. Yields were lowered as much as five basis points from preliminary pricing.
Bonds in the second series, $176 million of taxable bonds, were priced at par from 0.688% coupon in 2014 to 2.822% coupon in 2023. Spreads ranged from 45 basis points to 120 basis points above the comparable Treasury yields.
Goldman also priced Nassau County Local Economic Assistance Corp. revenue bonds for the Winthrop-University Hospital Association Project, rated Baa1 by Moody’s Investors Service and BBB-plus by Fitch. Prices were not available by press time.
In the secondary market, trades compiled by data provider Markit showed strengthening. Yields on New York Liberty Development Corp. 5.25s of 2035 plunged four basis points to 4.04% while Connecticut 5s of 2027 dropped three basis points to 2.40%.
Yields on California 5.25s of 2018 fell two basis points to 1.23%. Yields on Louisiana 5s of 2023 and San Antonio water 5s of 2037 fell one basis point each to 1.99% and 2.98%, respectively.
On Wednesday, the 10-year MMD yield dropped two basis points to 1.67% while the 30-year yield finished flat at 2.84%. The two-year closed flat for the seventh session at 0.30%.
Since munis began their steady to firmer streak on Sept. 17, the 10-year yield has plummeted 26 basis points from when it traded at 1.93%. The 30-year yield has plunged 22 basis points from when it traded at 3.06%.
The 10-year now hovers only seven basis points above its record low of 1.60% set July 26. The 30-year trades only five basis points above is record low of 2.79% hit July 25.
The Treasury yield curve steepened Wednesday as yields on the short end fell while yields on the long end rose. The two-year yield fell one basis point to 0.23% while the 30-year yield increased one basis point to 2.82%. The benchmark 10-year held steady at 1.62%.
So far this year, municipal bonds have generally performed well as recorded by the Standard & Poor’s municipal bond indexes. The S&P National AMT-Free Municipal Bond Index has returned 6.29% so far this year. The S&P Taxable Municipal Bond Index returned 8.06%.
In terms of credit quality, the high-yield index has blown the rest of the market away. The S&P Municipal Bond High Yield Index returned 14.30%. That compares with the S&P Municipal Bond Investment Grade Index which returned 6.31% year to date.
High yield sectors, such as nursing and tobacco bonds have outperformed the rest of the market. Through Wednesday, the S&P Municipal Bond Nursing index returned 11.52% year to date. The S&P Municipal Bond Tobacco Index returned a whopping 16.70% so far this year.
And while there are concerns over lower-rated municipalities, credits like California and Illinois have performed well as the search for yield in the low-rate environment continues. The S&P Municipal Bond California Index returned 10.22% this year while the S&P Municipal Bond Illinois Index returned 8.06%.
But not all lower-rated state credits have performed well. The S&P Municipal Bond Puerto Rico Index returned only 5.22% this year.
And fears over possible federal funding cuts to the Build America Bonds market due to sequestration appear to have had little imapct on the bonds. The S&P Municipal BAB index has returned 9.18% year to date, although the index is down 0.05% so far in October.