NEW YORK – The municipal market rallied to all-time lows for the 12th time in the past three weeks Wednesday, pushing 10-year tax-exempt yields below 2.20% and 30-year munis lower than 3.70% for the first time in history.
Traders said tax-exempt yields were better by three to five basis points overall amid light to moderate secondary trading activity.
“The demand for muni paper is just constant,” a trader in Los Angeles said. “It’s already becoming harder to find paper out in the Street. There is a need for new issuance, but it’s not coming this week. Today you saw more a flight-to-quality, which we’ve been getting lately. Any way you slice it, though, it’s another day, another record. And I’m not sure scraping the bottom just yet.”
The Municipal Market Data triple-A scale yielded record lows of 2.17% in 10 years and 3.30% in 20 years Wednesday, following 2.23% and 3.34% Tuesday. The scale yielded an all-time low of 3.67% in 30 years Wednesday, following 3.70% Tuesday.
Wednesday’s levels mark the 12th all-time low in 10-year munis set in the past 14 sessions. Also, 20- and 30-year tax-exempts reached record lows for the fourth time in five sessions.
Wednesday’s triple-A muni scale in 10 years was at 89.6% of comparable Treasuries and 30-year munis were at 104.2%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 115.6% of the comparable London Interbank Offered Rate.
The Treasury market showed losses Wednesday. The benchmark 10-year note was recently at 2.54% after opening at 2.49%.
The 30-year bond was recently quoted at 3.59% after opening at 3.56%. The two-year note was at 0.52% after opening at 0.49%.
The Treasury Department auctioned $36 billion of five-year notes, with a 1 1/4% coupon, a 1.374% high yield, a price of 99.40. The bid-to-cover ratio was 2.83. The Fed banks bought $881.4 million for their own account in exchange for maturing securities.
Six municipal bond exchange-traded funds touched all-time highs today.
Muni ETFs attempt to replicate the performance of a benchmark index, providing a theoretical real-time proxy for investors' assessment of where muni indexes are heading.
Funds reaching new apexes today included ETFs devoted to indexes tracking two Build America Bond indexes, and Standard & Poor's indexes following tax-free municipals maturing respectively in 2014, 2015, and 2016.
A half-dozen other funds reached 52-week highs, though not all-time highs. These included ETFs devoted to indexes tracking the Barclays Capital AMT-Free Long Municipal Index, the Barclays Capital Municipal Managed Money Index, two short-term indexes from Barclays and Standard & Poor's, and a Merrill Lynch index tracking long-term insured bonds in New York.
In the new-issue market Wednesday, Bank of America Merrill Lynch priced $176.7 million of bonds for the New Mexico Finance Authority in two series.
Bonds from the $96.4 million Series A-1 mature from 2011 through 2022 with term bonds in 2024. Yields range from 0.45% with a 3% coupon in 2012 to 2.91% with a 5% coupon in 2024. Bonds maturing in 2011 were decided via sealed bid. The bonds are callable at par in 2020.
Bonds from the $80.3 million Series A-2 mature from 2013 through 2021, with yields ranging from 0.74% with a 3% coupon in 2013 to 2.64% with a 3% coupon in 2021. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
RBC Capital Markets priced $202.7 million of taxable and tax-exempt state highway capital improvement revenue bonds for the Oklahoma Capitol Improvement Authority in two series, including $92.1 million of taxable Build America Bonds.
The BABs mature from 2021 through 2023 with a term bond in 2025. Yields range from 4.242% in 2021, or 2.76% after the 35% federal subsidy, to 4.792% in 2025, or 3.11% after the subsidy, all priced at par. The bonds were priced to yield between 175 and 230 basis points over the comparable Treasury yield. The bonds are callable at par in 2020.
The deal also contained a $110.6 million tax-exempt series, which matures from 2012 through 2020. Yields range from 0.52% with a 2% coupon in 2012 to 2.61% with a 5% coupon in 2020. These bonds are not callable.
The credit is rated AA by both Standard & Poor’s and Fitch Ratings.
New Hampshire competitively sold $150 million of taxable and tax-exempt debt in two series.
A $60 million series of taxable BABs was sold to JPMorgan, with maturities ranging from 2021 through 2030. Yields range from 3.30% with a 3.5% coupon in 2021, or 2.15% after the 35% federal subsidy, to 4.40% with a 4.5% coupon in 2030, or 2.86% after the subsidy. The bonds were priced to yield between 66 and 157 basis points over the comparable Treasury yields.
The state also sold $90 million of tax-exempt GO debt to Citi, with maturities ranging from 2012 through 2020. Yields range from 0.25% with a 5% coupon in 2012 to 2.13% with a 5% coupon in 2020. These bonds are not callable.
The credit is rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
In economic data released Wednesday, new orders for durable goods increased 0.3% in July, the first rise in three months, on a large gain in nondefense aircraft purchases as orders excluding transportation sank.
Excluding transportation orders, durable goods fell 3.8%, more than expected and the largest drop in 18 months.
Economists expected durable goods would fall 1.2% and orders excluding transportation goods would decline 0.9%, according to the median estimate from Thomson Reuters.
New home sales fell 12.4% in July to a record low of 276,000 sales at a seasonally adjusted annual rate as sale prices also dropped.
Home sales in June were revised lower to 315,000 from 330,000. May’s sales were revised higher to 281,000 from 267,000, which was the previous record low. Records for this series date back to 1963.
Economists expected 330,000 home sales for the month, according to the median estimate from Thomson Reuters.
Visible Supply
The Bond Buyer’s 30-day visible supply fell $666.7 million to $7.219 billion. The total is comprised of $1.381 billion of competitive bonds and $5.838 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 46,055 trades of 15,794 issues for volume of $14.89 billion. Most active was Puerto Rico 5.15s of 2017 that traded 955 times at a high of par and a low of 98.750.
