NEW YORK – The municipal market was unchanged to slightly firmer Tuesday in a primary-driven session that saw two universities lead the way, bringing to market nearly $1.5 billion of debt combined.
Traders said tax-exempt yields were firmer by one or two basis points on the shorter end of the curve, with yields mostly flat out longer than 15 years.
“There’s a little bit of firmness out there, but people were mostly focused on the new issues,” a trader in New York said. “We had a couple of nice-sized deals out there bringing some supply into the market, and people were generally more focused on the primary than the secondary today.”
In the new-issue market Wednesday, Morgan Stanley priced $743.2 million of taxable and tax-exempt debt for the Ohio State University in two series, including $654.8 million of taxable Build America Bonds.
The BABs mature in 2040, yielding 4.91% priced at par, or 3.19% after the 35% federal subsidy. The bonds are subject to a make-whole call at Treasuries plus 20 basis points and were priced to yield 113 basis points over the comparable Treasury yield.
The deal also contained an $88.4 million tax-exempt series, which mature from 2020 through 2032, with yields ranging from 2.80% with a 3.25% coupon in 2020 to 4.00% priced at par in 2032. These bonds are not callable.
The credit is rated Aa1 by Moody’s Investors Service and AA by both Standard & Poor’s and Fitch Ratings.
Also, JPMorgan priced $604.3 million taxable BABs for the University of Texas System Board of Regents.
The BABs mature from 2018 through 2026, with term bonds in 2030 and 2046. Yields range from 3.225% in 2018, or 2.10% after the 35% federal subsidy, to 4.794% in 2046, or 3.12% after the subsidy.
The bonds are subject to an unspecified make-whole call and were priced to yield between 55 and 160 basis points over the comparable Treasury yields.
The credit is rated triple-A by all three major ratings agencies.
The Municipal Market Data triple-A scale yielded 2.39% in 10 years and 3.33% in 20 years Tuesday, following 2.42% and 3.33% Monday. The scale yielded 3.72% in 30 years Tuesday, matching Monday.
“We’re picking up maybe a couple basis points in spots,” a trader in Los Angeles said. “I’m really not seeing any movement on the long end, we’re pretty flat out there. But in that 10-year range that has weakened quite a bit over the past week or so, we’re seeing probably a one or two basis point drop in yield today.”
Tuesday’s slight short-end firmness marked the first decline in yields in nine sessions, following seven consecutive sessions of rising yields to open September before Monday’s flatness.
Before the recent sell-off, yields dropped to all-time lows in 10-year munis 12 times in the prior 17 sessions. Also, 30-year tax-exempts set record lows four times in the previous eight sessions, while 20-year munis established all-time lows five times over the same time period.
The record lows currently stand at 2.17% and 3.67% in 10- and 30-year tax-exempts, both established August 25. The 20-year low of 3.28% was set August 31.
Friday’s triple-A muni scale in 10 years was at 86.7% of comparable Treasuries and 30-year munis were at 96.1%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 106.3% of the comparable London Interbank Offered Rate.
The Treasury market was showed gains Tuesday. The benchmark 10-year note was quoted at 2.67% after opening at 2.75%.
The 30-year bond was quoted at 3.79% after opening at 3.85%. The two-year note was quoted at 0.50% after opening at 0.53%.
In economic data released Tuesday, retail sales increased 0.4% in August, the strongest gain in five months, topping economists’ estimates.
Excluding auto sales, retail sales increased 0.6%, also the largest increase since March. Excluding auto, gasoline and building material, retail sales increased 0.5% for the month.
Economists expected retail sales and sales excluding auto to each increase 0.3%, according to the median estimate from Thomson Reuters.
Business inventories increased 1.0% in July, twice as much as economists expected and the largest increase in two years.
Total business sales increased 0.7%, the largest increase in four months, following a 0.5% drop in June.
Inventories were up a revised 0.5% in June, originally reported as a 0.3% rise. Retail inventories increased 0.7% for the month following a 1.1% gain in June. Retail inventories excluding motor vehicles were flat for the month.
Economists expected business inventories would increase 0.5% for July, according to the median estimate from Thomson Reuters.
Visible Supply
The Bond Buyer’s 30-day visible supply rose $641.9 million to $13.169 billion. The total is comprised of $2.853 billion of competitive bonds and $10.316 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 35,906 trades of 14,330 issues for volume of $8.52 billion. Most active was Chicago 6.207s of 2032 that traded 248 times at a high of 104.541 and a low of 100.625.
