Tax-exempts ended Tuesday weaker, following Treasuries, as market participants said this week’s trading activity remained slow.
With yields still hovering around their all-time lows and the market waiting for news from the Federal Open Market Committee on Thursday, the municipal bond market is in limbo.
One Chicago trader expressed frustration over the slow trading session which he described as a “non-event” day.
“I think if people can find a way not to do business and somehow wait, they are doing that,” a Chicago trader said. “If someone comes in and wants your bonds and you want to force liquidity, you’re going to pay for that. If you’re trying to make something happen you’re not going to get what you’re looking for.”
He added the market is irritated over the lack of activity. “It’s frustrating because relative to other things out there, our asset class could be considered attractive but absolute rates are a problem and there is so much external noise that could push us one way or the other.”
Still, there is a perceived avalanche of supply, but traders have yet to experience it. “The word is the calendar is building but it’s just not here right now,” the trader said. “So you just deal with what you have in front of you. And I’m just not getting a lot done.”
Other traders noted that while activity was slow, munis traded lower. “Munis are down a bit,” a New York trader said. “But it’s a bit slow. People are complaining that munis are hard to trade right now.”
In the primary market, Barclays Capital priced $156.3 million of Texas general obligation and water financial assistance bonds, rated triple-A by Moody’s Investors Service and Fitch Ratings and AA-plus by Standard & Poor’s.
Yields ranged from 0.26% with a 2% coupon in 2013 to 3.62% with a 3.5% coupon and 3.52% with a 4% coupon and 3.14% with a 5% coupon in a split 2041 maturity. The bonds are callable at par in 2022.
Jefferies & Co. priced $141.6 million of New York’s Onondaga Civic Development Corp. tax-exempt revenue bonds for St. Joseph’s Hospital Health Center Project, rated Ba1 by Moody’s and BB-plus by Standard & Poor’s.
Yields ranged from 2.15% with a 2% coupon in 2013 to 4.95% with a 5% coupon in 2042. The bonds are callable at par in 2042.
In the competitive market, JPMorgan won the bid for $197 million of Arkansas federal highway grant anticipation and tax revenue general obligation bonds, rated Aa1 by Moody’s and AA by Standard & Poor’s.
Yields ranged from 0.35% and 0.37% with 5% coupons in a split 2015 maturity to 1.63% and 1.69% with 5% coupons in a split 2021 maturity. Credits maturing between 2022 and 2024 were not formally re-offered. The bonds are callable at par in 2022.
Bank of America Merrill Lynch won the bid for $171.9 million of Missouri state water pollution and fourth state building GO refunding bonds in two series. The bonds are rated triple-A by the three major rating agencies.
Yields on the first series, $65.8 million of state water pollution control GO refunding bonds, ranged from 0.20% with a 3% coupon in 2013 to 1.27% with a 3% coupon in 2019.
Yields on the second series, $106.1 million of fourth state building GO refunding bonds, ranged from 0.20% with a 3% coupon in 2013 to 1.71% with a 2% coupon in 2021.
On Tuesday, the 10-year Municipal Market Data yield jumped two basis points to 1.81% while the 30-year yield increased one basis point to 2.94%. The two-year closed at 0.29% for the 33rd consecutive session.
Treasuries finished lower. The benchmark 10-year yield increased two basis points to 1.70% while the 30-year yield rose one basis point to 2.84%. The two-year was steady at 0.26%.
In the secondary market, trades compiled by data provider Markit showed mostly weaker trades. Yields on College Station, Texas, Independent School District 2s of 2032 jumped four basis points to 2.91%.
Yields on Puerto Rico Commonwealth 5.5s of 2039 and Wylie, Texas, Independent School District 5s of 2022 rose three basis points each to 5.14% and 1.99%, respectively. Yields on Iowa’s Tobacco Settlement Authority 5.625s of 2046 and New York City Municipal Water Finance Authority 5.724s of 2042 increased two basis points each to 6.27% and 3.90%, respectively.
To be sure, a few trades were stronger. Yields on Pennsylvania Turnpike Commission 5s of 2042 dropped four basis points to 3.48% while New Jersey Economic Development Authority 7.425s of 2029 fell three basis points to 4.93%.
So far in September, munis have outperformed Treasuries as tax-exempts have weakened, but not as much as Treasuries. The muni yield to Treasury yield ratio fell as munis outperformed Treasuries and became relatively more expensive.
The five-year ratio dropped to 104.5% on Tuesday from 111.3% on Sept. 4. The 10-year ratio fell to 106.5% from 109.5% at the beginning of the month. The 30-year ratio dropped to 103.5% on Tuesday from 107.4% at the start of September.
But from the beginning of the year, munis look comparatively cheaper to Treasuries, at least on the short and intermediate part of the curve. Ratios have risen as munis underperformed their taxable counterparts. The five-year muni yield to Treasury yield ratio jumped to 104.5% from 98.9% on Jan. 3. The 10-year ratio increased to 106.5% from 96.4% at the beginning of the year.
To be sure, ratios on the long end have plummeted since the beginning of the year when the 30-year ratio started at 119.4%.