With the new issue pricings out of the way, the secondary took over the municipal bond market Thursday and climbed higher, following Treasuries.
Traders said new issue supply was received well earlier in the week and bonds were subsequently trading up in the secondary.
“You see that 10-year Treasury? Everyone was calling for higher rates and look where we are now,” a New Jersey trader said. “There is very little supply here right now and institutions are loaded with cash. There is still not a lot of retail, especially on the front end of the curve.”
The combination of firmer Treasuries and little supply pushed munis higher. “We are definitely better today,” he said. “At least three to five basis points 19 years and out.”
Other traders said there wasn’t as much follow through in the secondary after a flurry of primary deals. “There was some buying this morning and there is still a bid side, but I thought it would be busier after yesterday,” a New York trader said. “Even though Treasuries spiked up this morning there was no follow-through from yesterday.”
This trader added there are still some bonds out in the secondary. “Munis finally had a good couple of days but there is still a lot of inventory out there in the secondary.”
In the remainder of the primary market, Wells Fargo Securities priced $345.3 million of Charleston Educational Excellence Financing Corp. installment purchase revenue refunding bonds on behalf of the Charleston, S.C., County School District. The bonds are rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s.
Yields ranged from 1.27% with a 2% coupon in 2018 to 3.18% with a 5% coupon in 2030. The bonds are callable at par in 2023.
JPMorgan priced for institutions $137.9 million of Pennsylvania Housing Finance Agency single family mortgage revenue bonds followed a retail order period Wednesday. The bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s.
The first series of $127.9 million of bonds subject to the alternative minimum tax were priced at par with 0.20% and 0.65% coupons in a split 2014 maturity to a 4.35% coupon in 2035. The bonds are callable at par in 2022. Coupons were lowered as much as five basis points from retail pricing.
The second series of $10 million, not subject to the alternative minimum tax, was priced at par with a 4% coupon in 2038 and a 4.10% coupon in 2043. The bonds are callable at par in 2022. The coupon on the 2043 maturity was lowered five basis points from retail pricing Wednesday.
In the secondary market, trades compiled by data provider Markit showed firming across the board.
Yields on Canadian River Municipal Water Authority in Texas 5s of 2025 and Florida State Board of Education 5s of 2025 plunged five basis points each to 2.51% and 2.34%, respectively.
Yields on California 5s of 2025 dropped five basis points to 2.71% and El Camino, Calif., Community College District 0s of 2033 fell four basis points to 4.36%.
Yields on Puerto Rico 5s of 2035 and New York City Municipal water Finance Authority 5s of 2034 fell three basis points each to 4.93% and 3.21%, respectively.
Yields on Pennsylvania 5s of 2021 and New York’s Metropolitan Transportation Authority 5s of 2043 fell one basis point each to 1.75% and 3.81%, respectively.
Municipal bond scales ended as much as six basis points firmer Thursday after posting gains Wednesday.
Yields on the Municipal Market Data triple-A GO scale ended as much as six basis points lower. The 10-year yield plummeted six basis points to 1.80% while the 30-year yield fell four basis points to 3.03%. The two-year finished flat at 0.31% for the 32nd consecutive session.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale ended as much as four basis points lower. The 10-year yield dropped four basis points to 1.88% and the 30-year yield fell three basis points to 3.14%. The two-year held at 0.33% for the 27th session.
Treasuries posted strong gains. The benchmark 10-year yield plunged five basis points to 1.76% while the 30-year yield dropped six basis points to 2.99%. The two-year finished steady at 0.23%.
Treasuries were stronger coming off news from the European Central Bank that rates will stay at 0.75%. While that was expected, ECB President Mario Draghi hinted that more easing could come soon, saying the ECB “will monitor very closely all incoming information on economic and monetary developments and assess any impact on the outlook for price stability.”
“The discussion of a rate cut for the second straight month, along with Draghi noting the incoming data will be monitored ‘very closely’, suggest a rate cut could come as soon as next month,” wrote Benjamin Reitzes, senior economist at BMO Capital Markets. “Clearly, the persistently weak economic backdrop is worrying for the ECB, though, barring an aggressive shift it’s questionable how much of an impact any policy manoeuvres might have.”
Over the past week, muni-to-Treasury ratios have jumped on the short- and long-end as munis underperformed Treasuries and became relatively cheaper. The five-year ratio rose to 114.5% on Thursday from 109.1% the week before. The 30-year ratio also increased to 101.3% from 99.4% the previous Thursday.
But ratios in the belly of the curve have fallen as munis outperformed Treasuries and became relatively more expensive. The 10-year ratio fell slightly to 102.3% from 103.2%.
Since the beginning of the year, ratios have risen across the curve as munis underperformed their taxable counterparts. The five-year ratio jumped to 114.5% from 110.5% at the beginning of the year. The 10-year ratio increased to 102.3% on Thursday from 96.7% on Jan. 2. The 30-year yield rose to 101.3% from 93.8% at the start of 2013.