NEW YORK – The tax-exempt market ended the day mostly flat even as traders had differing opinions on the tone of the market.
Some traders said the muni bond market was much stronger while others said it was weaker. Trades in the secondary market also exemplified both tones in the market.
“Overall, I would say we are fairly flat,” a Chicago trader said. “You can find trades that are much stronger and find trades that are off. But I wouldn’t say we are any one direction.”
He added there is still not a lot of underlying supply but the market is looking toward an Illinois deal coming next week. “But the stuff that is high grade and high quality hasn’t moved at all. If you need to move something, you cut it and find a price.”
He added there was some decent follow through even for 3% coupons further out on the curve Wednesday afternoon.
The trader said in terms of munis following Treasuries, if the 10-year Treasury gets behind 2.00%, the bonds can fade further. “But when it’s through 2.00%, it’s totally different and hard for munis to drift off.”
Another trader said munis were stronger Wednesday morning. “Munis are pretty strong this morning,” a New York trader said, despite lower Treasuries Tuesday and Wednesday. “There is a lot of money on the sidelines and people are betting that it goes into munis.”
Munis were steady to slightly weaker Wednesday, according to the Municipal Market Data scale. Yields between the three-year and 17-year rose one and two basis points while yields outside 18 years were flat.
On Wednesday, the two-year yield closed steady at 0.31% for the sixth consecutive trading session while the 30-year ended flat at 3.25% for the third consecutive trading session. The 10-year yield jumped two basis points to 1.87%.
Treasuries weakened slightly Wednesday. The benchmark 10-year yield rose two basis points to 1.99% while the 30-year yield jumped three basis points to 3.15%. The two-year was steady at 0.28%.
Treasury reaction to the Federal Open Market Committee statement and press conference Wednesday afternoon was muted. The FOMC maintained its 0% to 0.25% target range for the federal funds rate.
“The language on the economy included a modest upgrade to the outlook as although the Fed repeated that growth is expected to be ‘moderate’ in the coming quarters, today’s statement added that the Committee expects growth will then ‘pick up gradually’,” wrote economists at RDQ Economics.
“The most significant and surprising feature of the materials accompanying the press conference is the shift in forecasts for the timing of the first rate hike, given the unchanged language in the statement relating to ‘at least’ late 2014,” the economists added after Fed Chairman Ben Bernanke spoke. “The two 2016 projections have been eliminated and two more participants now see 2014 as the appropriate date for the first tightening. Therefore, while the mode of participants’ forecasts remains 2014, there are now more participants who think it will be appropriate to tighten policy before 2014 than the number who look to tighten after 2014.”
In the primary market, Morgan Stanley held preliminary pricing for $268.3 million of Allen County, Ohio, hospital facilities revenue refunding and improvement bonds, rated A1 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields ranged from 2.04% with 3% and 4% coupons in a split 2019 maturity to 4.25% with a 5% coupon in 2042. The bonds are callable at par in 2022.
In the competitive market, Citi won the bid for $267.4 million of Florida Department of Transportation bonds, rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch. Yields ranged from 0.30% with a 2% coupon in 2013 to 3.60% with a 4% coupon in 2033.
Bank of America Merrill Lynch won the bid for $196.6 million of Nassau County general obligation bonds, rated A1 by Moody’s and A-plus by Standard & Poor’s. Yields ranged from 2.00% with a 5% coupon in 2019 to 3.77% with a 4% coupon in 2029. Credits maturing between 2014 and 2018, between 2023 and 2026, and between 2030 and 2034 were sold but not available. The bonds are callable at par in 2021.
Bank of America Merrill Lynch won the bid for $108 million of Colorado Springs revenue bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields ranged from 0.28% with a 3% coupon in 2013 to 3.53% with a 4% coupon in 2033. Credits maturing between 2015 and 2018, in 2025 and 2026, and between 2034 and 2043 were sold but not available. The bonds are callable at par in 2022.
Even in the secondary market, traders couldn’t agree on the direction of munis. According to a sample of CUSIP numbers compiled by data provider Markit, trades showed weakening.
Yields on California State Public Works Board 4s of 2027 rose two basis points to 4.11% while yields on Connecticut 4.5s of 2019 rose four basis points to 1.73%. Yields on Puerto Rico Sales Tax Financing Corp. 5s of 2040 jumped five basis points to 4.10% while Metropolitan Government of Nashville and Davidson County 5s of 2020 spike 10 basis points to 2.08%.
Other trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer bought from a customer Illinois 5s of 2035 at 4.34%, seven basis points lower than where they traded two weeks ago. A dealer sold to a customer Michigan Finance Authority 5s of 2031 at 3.13%, five basis points lower than where they traded last week.
A dealer bought from a customer Puerto Rico Electric Power Authority 5s of 2042 at 5.00%, two basis points lower than where they traded Monday. A dealer bought from a customer New York City Transitional Finance Authority 5s of 2042 at 3.64%, two basis points lower than where they traded last week.