NEW YORK – The tax-exempt market had no trouble handling the large supply that came in the primary market Wednesday. Deals were oversubscribed even as a large deal was priced a day ahead of schedule.
“Deals are still over subscribed this week,” a New York trader said. “There is still very strong interest. It’s the typical story of you put your order in, it’s oversubscribed, you get bumped, and then you don’t get the allocation that you want.”
He added in the secondary, “We are starting to see a little pushback. But the primary is still very strong.”
Other traders agreed and said the primary market is taking center stage. “There was an interesting article on corporate issuance about supply being gobbled up by too much cash,” a Chicago trader said. “It seemed pretty true to what I think is going on in munis as well. The thing is muni buyers are a little more fickle – hence the up two basis points and down two basis points movements for the last two months.”
There is a “wait and see attitude when supply shows up and it gets placed and then everyone goes back to sleep for a while,” he added.
A New Jersey trader Wednesday morning said “new deals are keeping us busy,” adding that while Treasuries were off on the long end, munis weren’t following.
Munis were steady to weaker Wednesday, according to the Municipal Market Data scale. Yields inside six years were steady while the eight- to 18-year yields rose one basis point. The 19- to 24-year yields were steady while yields outside 25 years increased one basis point.
On Wednesday, the two-year yield ended steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 10-year and the 30-year yields rose one basis point each to 1.85% and 3.23%, respectively.
Treasuries continued to weaken for the second consecutive trading session on positive economic news. The benchmark 10-year yield jumped three basis points to 1.98%. The two-year yield rose one basis point to 0.31% and the 30-year yield increased two basis points to 3.09%.
In the primary market, JPMorgan held its second day of retail on $2 billion of California various purpose general obligation refunding bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings. Pricing information was not yet available.
In the first retail order period, yields ranged from 0.66% with 2%, 3%, and 5% coupons in a split 2014 maturity to 4.375% priced at par and 4.09% with a 5% coupon in a split 2038 maturity. Credits maturing between 2025 and 2026, between 2028 and 2031, and in 2033 were not offered for retail. The bonds are callable at par in 2022.
Retail investors placed $765 million of orders in the first day of retail, or 38.4% of the total offering, according to a spokesman for the California state treasurer. By the end of the second day of retail, orders had exceeded $900 million. “The retail demand has been pretty hefty, so we’re pleased with the results so far,” the spokesman said.
Morgan Stanley priced $344.7 million of California Health Facilities Financing Authority in two pricings - $251.3 million of new money bonds and $93.4 million of refunding bonds. Pricing was pushed up a day from Thursday. The credit is rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch.
The $251.3 million deal was split into two series. Bonds in the first series, $200 million, yielded 4.32% with a 5% coupon in 2051. Yields on the second series, $51.3 million, ranged from 0.33% with a 3% coupon in 2013 to 3.21% with a 5% coupon in 2027. The bonds are callable at par in 2022.
The second pricing of $93.4 million was split into three series. The bonds in the first two series, each $30.3 million, yielded 1.45% priced at par in 2033. Bonds in the third series, $32.8 million, yielded 1.45% priced at par in 2023.
Wells Fargo priced $159.2 million of County of Guilford, N.C., general obligation public improvement refunding bonds, rated triple-A by all three rating agencies.
Yields on the first series, $133.7 million, ranged from 0.31% with a 4% coupon in 2014 to 3.15% with a 3% coupon in 2031. Credits maturing in 2013 were not formally reoffered. The bonds are callable at par in 2022.
Yields on the second series, $25.5 million of refunding bonds, ranged from 0.62% with a 2% coupon in 2016 to 1.64% with a 3% coupon in 2020.
In the competitive market, Alabama Public School and College Authority auctioned $162.1 million of refunding bonds in two pricing – $80.3 million and $81.8 million. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
Goldman, Sachs & Co. won the bid for $80.3 million. Pricing information was not yet available.
Bank of America Merrill Lynch won the bid for $81.8 million. Yields ranged from 1.51% with a 5% coupon in 2019 to 3.05% with a 3% coupon in 2029. Bonds maturing between 2015 and 2018 were sold but not available. The debt is callable at par in 2022.
JPMorgan won the bid for $153.8 million of Oyster Bay, N.Y., bond anticipation notes, rated SP-1-plus. The bonds yielded 0.55% with a 2.5% coupon.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming this week. A dealer sold to a customer Washington 5s of 2035 at 3.25%, nine basis points lower than where they traded Tuesday.
Bonds from an interdealer trade of West Contra Costa, Calif., Unified School District 6.25s of 2030 yielded 5.67%, eight basis points lower than where they traded Tuesday. Bonds from another interdealer trade of New York Liberty Development Corp. 5s of 2041 yielded 3.79%, four basis points lower than where they traded Tuesday.
In the month of February, ratios have fallen as munis outperformed Treasuries and became more expensive. The five-year ratio ended at 81.9% on Tuesday, down from 100% at the beginning of the month. The 30-year ratio ended at 105.2%, down from 106.8% at the beginning of February. The 10-year muni-to-Treasury ratio was the anomaly, rising slightly to 95.3% from 93.3%.
Over the month of February, the slope of the yield curve has fallen. The 10- to 30-year slope fell to 138 basis points from 146 basis points at the beginning of the month.
Throughout February, investors have also moved out on the credit scale in the 10-year range but pulled back from lower-rated credits on the long end. The 10-year triple-A muni to single-A muni spreads fell to 89 basis points on Monday from 91 basis points at the beginning of the month. Spreads fell down to 88 basis points mid-month before rising back up.
The 30-year triple-A to single-A spreads rose to 82 basis points from 79 basis, showing buyers are less willing to take credit risk longer out on the yield curve.
The two-year and five-year triple-A to single-A credit spreads were steady at 44 basis points and 72 basis points, respectively.
