NEW YORK – The tax-exempt market seemed to stall Monday as primary and secondary market activity nose-dived from last week. The Federal super committee’s failure spurred small gains as investors rushed to safe-haven assets.
“I hate to say this, but it’s getting real quiet all of the sudden,” said a trader in New York. Although it was quiet, “there are some spurts of buying,” he added.
“The 30-day dropped off big from last week,” he added, referring to the 30-day visible supply. “But that’s pretty seasonal around Thanksgiving.”
The market appeared to shut down even by early afternoon. “It’s very quiet across the board here today,” said a trader in New Jersey. There is low volume. We haven’t even hit $500 billion yet.”
News in the primary market didn’t sound any different. “New issuance is taking a nice dip down due to the holiday week so it’s very quiet out there today,” he added.
A second New York trader added the entire week is expected to be slow. “It’s very quiet,” he said. “And it’s going to be very quiet for the holiday week.”
Despite a relatively quiet day, munis edged higher, following Treasuries, as the failure of the federal “super committee” to come up with $1.2 trillion in cuts pushed investors into safe haven assets.
The New York trader said the news of the super committee’s failure to come to an agreement has not impacted the market much. “The biggest surprise would be if they actually got something done.”
Munis were firming on Monday, according to the Municipal Market Data scale. Yields inside the five-year were unchanged. The six-year yield finished down one basis point and the seven- and eight-year yields closed down two basis points. The 10-year spot fell three basis points and yields beyond 2022 finished down two basis points.
On Monday, the two-year muni closed flat at 0.42% for its 14th consecutive trading session. The 10-year yield finished down three basis points to 2.23% and the 30-year yield closed down two basis points to 3.75%.
The super committee’s failure to reach an agreement affected the broader market.
Treasuries rallied. The benchmark 10-year and the 30-year yields each closed down four basis points to 1.97% and 2.96%, respectively. The two-year yield was down one basis point to 0.28%.
The indexes were all down between 1.86% and 2.11%. The Dow Jones Industrial Average was down almost 250 points, or 2.11%, to 11,547, although it closed off its lows of the day when it was down over 300 points.
In the primary market, RBC Capital Markets priced for institutions $295.6 million of California Public Works Board lease revenue bonds. The bonds are rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s and AA by Fitch Ratings. Retail pricing took place Friday.
Yields ranged from 1.36% with 2% and 5% coupons in a 2015 split maturity to 4.33% with a 5% coupon in 2031. The bonds are callable at par in 2021.
The California deal “is expected to provide California investors with some diversification away from state GO debt and aversion from potential local budget cuts expected in California by year’s end,” MMD’s Domenic Vonella wrote.
Loop Capital Markets took retail orders for a second day on $213 million of University of Connecticut general obligation bonds. The credit is rated Aa2 by Moody’s, AA by Standard & Poor’s and AA-minus by Fitch.
The University of Connecticut deal “should see decent reception as endowments can sometimes insulate universities from municipal economic woes,” Vonella wrote.
Yields on the first series, $180.4 million of GOs, ranged from 0.40% with 2%, 3%, and 5% coupons in a 2013 split maturity to 3.75% and 3.71% with 3.75% and 5% coupons in a 2030 split maturity. Debt maturing in 2012 was offered via sealed bid. Credits maturing in 2023, 2025, 2027 to 2029, and 2031 were not offered for retail. The bonds are callable at par in 2021.
Yields on the second series, $32.6 million of refunding GOs, ranged from 0.20% with a 1.5% coupon in 2012 to 2.80% with a 5% coupon in 2023. The bonds are callable at par in 2021.
Wells Fargo priced for retail $172.5 million of Westchester County Health Care Corp. revenue bonds in two pricing, consisting of $107.8 million of Series 2000 A senior lien bonds and 64.7 million of Series 2011 senior lien bonds. The credit is rated A3 by Moody’s and BBB by Standard & Poor’s.
The $107.8 million of senior lien bonds yielded 4.01% with a 5% coupon in 2021, 4.17% with a 5% coupon in 2022, and 4.33% with 4% and 5% coupons in a 2023 split maturity. Credits maturing between 2024 and 2030 were not offered for retail. The debt is callable at par in 2021.
Within the $64.7 million series, $49.4 million of Series 2011 A and $15.4 million of Series 2011 B bonds were offered.
Yields on the first series ranged from 1.35% with a 2% coupon in 2012 to 5.11% with a 5% coupon in 2030. Debt maturing in 2041 was not offered for retail. Credits on the second series were not offered for retail. The debt is callable at par in 2021.
Bank of America Merrill Lynch priced $107 million of triple-A rated Missouri State Environmental Improvement and Energy Resources Authority water pollution control and drinking water refunding revenue bonds.
Yields ranged from 0.30% and 0.39% with 2% and 4% coupons in a 2013 split maturity to 3.01% with a 3% coupon in 2025. Bonds maturing in 2012 were offered via sealed bid. Portions of credits maturing between 2022 and 2025 were not offered for retail. The debt is callable at par in 2022.
In the competitive market, RBC won the bid for $22.9 million of Florida Board of Governors revenue refunding bonds for the Florida International University dormitory. The credit is rated Aa3 by Moody’s, AA-minus by Standard & Poor’s, and A-plus by Fitch.
Yields ranged from 0.81% with a 3% coupon in 2013 to 3.785% with a 3.5% coupon in 2025. The bonds are callable at par in 2021.
And while the secondary market was light Monday, trades reported by the Municipal Securities Rulemaking Board showed gains.
Bonds from an interdealer trade of New Jersey Transportation Trust Fund Authority 5s of 2042 yielded 4.87%, eight basis points lower than where they traded Friday.
A dealer sold to a customer Hawaii 5s of 2021 at 2.57%, eight basis points lower than where they traded Friday.
Bonds from an interdealer trade of Hawaii 4s of 2031 yielded 3.97%, five basis points lower than where they traded Friday.
A dealer bought from a customer New York City Transitional Finance Authority 5s of 2038 at 4.20%, two basis points lower than where they traded Friday.
In economic news, existing home sales rose 1.4% in October to a seasonally adjusted 4.97 million-unit rate from a revised 4.90 million unit rate in September, according to the National Association of Realtors.
“Although this report reflects activity that was initiated in the late summer it is the third housing report in recent weeks to show better-than-expected and modestly improving housing activity,” wrote analysts at RDQ Economics. “This is consistent with our view that housing will not be a drag on growth in 2012, but we do not expect it to add much to growth at the margin. This report further adds to the case that the U.S. is not sliding into recession.”
