The municipal market got a breath of fresh air Tuesday as a smattering of issuance offered new money to investors.
Yields on municipal bonds fell as low supply meant issuers could price bonds at rich levels. New deals came from California, Florida, Massachusetts and New Mexico, part of just $2.76 billion scheduled in potential issuance this week.
"It's an attractive market to issue in," Adam Buchanan, vice president of sales and trading at Ziegler, said in an interview. "There's not a lot of competition at the moment. Because of the lack of supply, there have been some good market movements for new issues."
In the negotiated market, Ziegler underwrote $68.95 million of Alachua County, Florida, Health Facilities Authority bonds for the East Ridge Retirement Village. The bonds, rated BB by Fitch Ratings, were well-received by investors looking for higher-yielding securities, Buchanan said.
"It was a good representation of what's happening in the high yield market right now," Buchanan said. "There's a big shift there with money flowing into yield funds."
Yields on the Florida retirement center bonds fell as much as five basis points after repricing. Final yields were 5.125% on 5% coupon bonds maturing in 2024 and 6.5% on 6.375% bonds maturing in 2049. The bonds are callable at par in 2024.
Investors in the municipal market are still focusing energy on getting bonds with high yields, Buchanan noted. Bonds in the Ziegler deal maturing in 20334, 2044 and 2049 were the most popular, Buchanan said.
A similar deal in the beginning of the year would have come in with yields on the long end of that range around 100 basis points higher, Buchanan said.
The availability of new paper brought some much-needed activity to trading Tuesday, one trader in New York said in an interview.
"Seems like most people are sitting waiting on new deals, the secondary has been pretty light on activity," the New York-based trader said. "The name of the game is looking at new issuance, if the credit fits and hoping to get a decent allocation on it."
Citigroup Global Markets won the bid for $165.3 million of competitive California Department of Water Resources bonds, the largest issue to come to market so far this week. "Considering it's high grade, I'd think quite a few people will be focused on that [California deal]," the trader said. "We're looking forward to the Delaware deal [$227 million of general obligation bonds] later in the week."
In the negotiated market, Piper Jaffray was expected to bring $200 million of California School Cash notes on Tuesday.
"With a few new issues rolling out today, muni volume should increase over Monday's anemic pace," Janney Capital Markets said in a report Tuesday morning.
The California water revenue bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
Yields on the bonds ranged from 0.15% with a 5% coupon maturing in 2015 to 3.82% with a 4% coupon maturing in 2035. The bonds are callable at par in 2024.
The largest deal of the week, $270 million of Barclays Capital-led tax allocation refunding bonds for the Inland Valley, California Development Agency, originally set for Monday, is now scheduled for Thursday, sources said.
Muni trading volume was up 8.5% from average at closing time Tuesday. On Monday, that same figure was 8% below the average volume, as issuers failed to offer the market any large new deals.
The most actively traded issuers were California and Washington bonds, with Puerto Rico trading activity falling by 12.4%, according to Bloomberg data. The island was the fifth-most traded region in the municipal market.
Bonds with maturities beyond 12 years were the most actively traded, with a lower dealer buy-to-sell ratio than any other bonds, at 53%.
Municipal Market Advisors reported yields falling as much as two basis points on bonds maturing from 2042 to 2044. The shortest end of the curve was unchanged, while all other bonds lost at least one basis point, MMA said.
Yields on bonds were lower Tuesday, according to Municipal Market Data. Bonds maturing from 2033 to 2044 fell by as much as three basis points, while those on the shorter end of the curve were steady to one basis point lower. Bonds maturing from 2022 to 2032 lost two basis points.
Treasury yields also firmed Tuesday, with the 30-year benchmark Treasury yield down three basis points to 3.67%, and the 10-year at 2.71%. The two-year yield was unchanged at 0.33%.
Secondary trading mostly showed strengthening, though performance was weaker for some bonds, according to data from Markit.
Yields on New Jersey Tobacco Settlement asset-backed senior-lien bonds with a 5% coupon maturing in 2041 fell by four basis points to 7.14%, and Northeast Ohio Regional Sewer District Wastewater revenue bonds with a 4.75% coupon maturing in 2033 fell by three basis points to 3.40%.
Yields on Montgomery County, Ala., Waterworks and Sewer System revenue bonds with a 5% coupon maturing in 2025 jumped four basis points to 2.75%, while Seguin, Texas, general obligation bonds with a 4% coupon maturing in 2032 climbed two basis points to 4.03%.
