NEW YORK – The municipal market was mostly flat Wednesday as the week’s largest deals were priced in the primary.
“The focus was the new issues today,” a trader in New York said. “We were pretty much flat on the whole. There was a bit of weaker tone early on, but that faded. But with the light calendar we’ve had, people were paying attention to the new issues today.’
The Municipal Market Data triple-A 10-year scale climbed one basis point Tuesday to 3.39%, the 20-year scale rose one basis point to 4.62%, and the scale for 30-year bonds increased three basis points to 4.95%.
“I’m not seeing a whole lot of movement,” a trader in San Francisco said. “There was some activity in the secondary, but it felt sideways to me.”
Wednesday’s triple-A muni scale in 10 years was at 92.9% of comparable Treasuries and 30-year munis were at 105.1% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 111.5% of the comparable London Interbank Offered Rate.
Treasuries showed gains Wednesday. The benchmark 10-year note was quoted recently at 3.66% after opening at 3.73%. The 30-year bond was quoted recently at 4.71% after opening at 4.77%. The two-year note was quoted recently at 0.81% after opening at 0.85%.
In the daily MMD commentary, Randy Smolik wrote “two nemesis of the muni market, questionable street support of a front-loaded South Carolina loan and weakening treasuries, have faded from concern. Underwriters competing for a thinning primary calendar this year paid firm levels for” the South Carolina offering.
The state competitively sold $323.5 million of bonds in two series.
Bonds from the $197.2 million series mature from 2012 through 2017, with yields ranging from 0.75% with a 5% coupon in 2013 to 2.24% with a 5% coupon in 2017. Bonds maturing in 2012 were not formally re-offered. The bonds are not callable.
Bonds from the $126.3 million series mature from 2012 through 2018, with yields ranging from 0.75% with a 5% coupon in 2013 to 2.57% with a 5% coupon in 2018. Bonds maturing in 2012 were not formally re-offered. The bonds are not callable.
The credit is rated Aaa by Moody’s Investors Service, AA-plus by Standard & Poor’s, and AAA by Fitch Ratings.
Also in Wednesday’s new-issue market, Bank of America Merrill Lynch priced $325.2 million of public improvement refunding bonds for the Puerto Rico, upsized from an originally planned $85 million.
The bonds mature in 2024, 2025, 2027, 2028, 2033, 2034, and 2040. Yields range from 5.50% with a 5.25% coupon in 2024 to 6.27% with a 6.5% coupon. The bonds are callable at par in 2021, except bonds maturing in 2033, which are callable at par in 2016.
Bonds maturing in 2024 and 2025 and portions of bonds maturing in 2033 are insured by Assured Guaranty Municipal Corp.
The remaining bonds were uninsured. The underlying credit is rated A3 by Moody’s, BBB-minus by Standard & Poor’s, and BBB-plus by Fitch.
"We’ve had very light supply and a very thin market," said Adam Mackey, managing director of municipal fixed income at PNC Capital Advisors. "I certainly think there is a calm before the storm right now, where there’s no depth and the market’s just trading really thin."
Trades reported by the Municipal Securities Rulemaking Board Wednesday showed little movement. A dealer sold to a customer taxable New Jersey Turnpike Authority Build America Bond 7.102s of 2041 at 6.82%, even with where they were sold Tuesday. A dealer bought from a customer Maryland 5s of 2022 at 3.42%, even with where they traded Tuesday.
A dealer bought from a customer Long Island Power Authority 5.5s of 2033 at 5.29%, even with where they were sold Tuesday. Bonds from an interdealer trade of Puerto Rico 5s of 2028 yielded 6.17%, even with where they traded Tuesday.
In a research note, Bonddesk Group wrote that, though retail investors in the mutual fund market have pulled money out of munis in droves over the past few months, the buy/sell ratio for municipals in January was 2.6, which “indicates that there are substantially more individual buyers than sellers of municipal bonds, which makes sense because many municipal owners are buy and hold investors.”
The report also notes that “the past three months have been a remarkably active period for the retail market for municipal bonds. Following a year of relative calm, yields and trade volumes started surging in November and continued through December and January.”
In total, January saw 403,218 buys as opposed to 154,061, producing the 2.6 ratio. This is considerably higher than the ratio in the corporate bond market, which was 1.2 in January, according to the report.
The economic calendar was light Wednesday.
Visible Supply
The Bond Buyer's 30-day visible supply rose $205.1 million to $8.397 billion. The total is comprised of $2.140 billion of competitive bonds and $6.257 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported there were 50,148 trades of 18,160 issues for a volume of $11.25 billion. Most active was taxable Chicago 7.781s of 2035 that traded 231 times at a high of 102.503 and a low of 99.100.
