NEW YORK — A cautious municipal market on Wednesday steered a narrow course between the Scylla of free-falling equities and the Charybdis of rocketing Treasuries.
In the middle, muni investors, who watched the debacle of the Greece bailout unfold and absorbed more negative economic news, took only moderate interest in the slew of new deals to hit the market, traders said.
“We’re responding to both Treasuries and the stock market,” A trader in New York said. “We stayed in our niche and let this play out around us. There was a decent reception, though not a roaring reception, for the new issuance brought to market.”
Through it all, tax-exempt yields were steady across the short- and intermediate-term portions of the curve, according to the Municipal Market Data triple-A scale. Long-term yields fell one to two basis points on the day.
The benchmark 10-year yield ended the day flat at 2.64%, the MMD scale showed. The 30-year yield fell two basis points to 4.26%.
The two-year yield held steady at 0.42% for the third day in a row. Prior to this level, it had held at 0.44% for 17 consecutive trading sessions.
Treasuries closed the day down dramatically from Tuesday’s substantial weakening. The 10-year yield fell 13 basis points to 2.97%. The two-year yield dropped six basis points to 0.38%, and the 30-year yield has plummeted 12 basis points to 4.19%.
The three major stock markets were hammered on Wednesday. The Dow Jones Industrial Average fell 1.48%, to settle at 11,897. The S&P’s 500 lost 1.74%, and the Nasdaq market fell 1.76% on the day. But regardless of how equities and Treasuries performed, munis didn’t really followed in line with the trend.
Investors, flush with cash from redemptions this month, showed mixed interest in the relatively decent supply to hit the muni market Wednesday, traders said. New deals totaling $5.22 billion were expected to reach the market this week.
The largest negotiated deal Wednesday, from the city of Los Angeles, led the way. Morgan Stanley priced for retail $705.2 million of Los Angeles Department of Water and Power, power system revenue debt.
Yields on the deal ranged from 0.54% in 2013 to 3.26% in 2022. The yield for 2013 bonds fell three basis points on repricing. Maturities in 2012 were not reoffered.
The bonds were rated Aa3 by Moody’s Investors Service and AA-minus by both Standard & Poor’s and Fitch Ratings.
Morgan Keegan priced $448.7 million of New York City Municipal Water Finance Authority water and sewer system second general resolution revenue bonds.
Yields ranged from 3.89% in 2026 to 4.43% in 2032. The bonds were rated Aa2 by Moody’s, and AA-plus by both Standard & Poor’s and Fitch.
JPMorgan priced for institutions $610.6 million of Utah general obligation debt. The bonds received top ratings from all three agencies.
Yields on the deal ranged from 0.43% in 2013 — with coupons from 2% to 4% — to 3.48% in 2026. Debt maturing in 2012 will be decided in a sealed bid.
But the preliminary offering was cheapened four to eight basis points from the retail pricing levels on Tuesday, MMD analyst Randy Smolik noted.
In the competitive market, the New Jersey Educational Facilities Authority competitively sold $250 million of Princeton University revenue debt to Citi.
Yields for the deal range from 1.15% in 2016 to 4.45% in 2041. Maturities in 2013 through 2015, 2019 through 2020, 2023, and 2025 through 2026 were not reoffered.
The revenue bonds were rated triple-A by Moody’s and Standard & Poor’s.
The deal saw very strong pricing, traders said. Princeton debt, like that of other top universities, typically generates a lot of interest and won’t lack for investors, added a trader in New Jersey.
“Princeton seems to get done every time it comes to market,” the New Jersey trader said. “Anything with the name Princeton, Harvard, and the MITs of the world, will always find buyers.”
Last week saw $5.7 billion reach the market, according to Ipreo LLC and The Bond Buyer; it ranked among the largest weeks of new issuance for the year. So far in 2011, weekly volume has averaged around $3 billion a week.
Some economic indicators released Wednesday continued to show a U.S. economy that is struggling to regain its footing.
Builder confidence in the market for newly built, single-family homes declined three points in June to a reading of 13 on the National Association of Home Builders/Wells Fargo Housing Market Index, released Wednesday. The index, which hasn’t reached so low a level since last September, had been holding at a low but steady level for the past six months.
The Consumer Price Index for all urban consumers piled on when it increased 0.2% in May on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported Wednesday. Over the last 12 months, the all items index increased 3.6% before seasonal adjustment. And the index for all items less food and energy increased 0.3% in May, its largest rise since July 2008.
“The day’s economic numbers put a little question into the growth prospects going forward,” a trader in Florida said. “Treasuries will have a choppy environment for the short term and munis will react accordingly.”
