NEW YORK – The tax-exempt market slowed Tuesday afternoon after a fairly active morning.
“We were moderately active, and still firm, but really we closed unchanged,” said a trader in New York. “I couldn’t see a maturity that ended up improved.”
He added the market “is trying to get through tomorrow as everyone will leave tomorrow afternoon.”
In the morning, it was “busier than I thought it would be,” said a second trader in New York, adding that Treasuries were starting to look choppy, which slowed down activity in the afternoon.
And while market activity was slower than usually, a trader in Chicago said “there are still a couple things that are trading.”
He added traditional credits and structures are still in demand. “Some of my retails with a 5% coupon and a 10-year call provision are better and are trading,” he said. “But things that are a little dicey in terms of credit and structure are not.”
Munis were mostly steady Tuesday after a rally Monday, according to the Municipal Market Data scale. Yields were flat across the curve, except for yields on the six- to 11-year spots which fell one basis point.
The two-year muni yield closed flat at 0.42% for its 15th consecutive trading session. The 30-year yield finished flat at 3.75%. The 10-year yield fell one basis point to 2.22%.
Treasuries were mixed and choppy with a late rally pushing yields lower. The two-year yield fell one basis point to 0.27%. The benchmark 10-year yield fell four basis points to 1.93% and the 30-year dropped six basis points to 2.90%.
“With the holiday approaching, bond markets in general seemed mostly on hold,” said MMD’s Randy Smolik. “The slowing holiday flows have encouraged some muni dealers to work down positions, concerned that following Thanksgiving, issuance could turn hefty over the following couple of weeks.”
But on the other hand, there are some buyers in the market, “encouraging lower yields while the primary was not providing any competition,” he said.
In the primary market, Loop Capital Markets priced for institutions $211.3 million of University of Connecticut general obligation bonds following two days of retail pricing. The credit is rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s and AA-minus by Fitch Ratings.
Yields on the first series, $179.6 million of GOs, ranged from 0.40% with 2%, 3%, and 5% coupons in a 2013 split maturity to 3.81% with a 5% coupon in 2031. Debt maturing in 2012 was offered via sealed bid. The bonds are callable at par in 2021. Bonds were cheapened up to three basis points from Monday’s retail pricing.
Yields on the second series, $31.7 million of refunding GOs, ranged from 0.20% with a 1.5% coupon in 2012 to 2.82% with a 5% coupon in 2023. The bonds are callable at par in 2021. The bonds were cheapened up to two basis points from Monday’s retail pricing.
Wells Fargo priced for institutions $170.9 million of Westchester County Health Care Corp. revenue bonds in two pricings, consisting of $107.7 million of Series 2000 A senior lien bonds and $63.2 million of Series 2011 senior lien bonds. The credit is rated A3 by Moody’s and BBB by Standard & Poor’s.
Yields on the first series, $107.7 million of senior lien bonds, ranged from 3.98% with a 5% coupon in 2021 to 5.09% with a 5% coupon in 2030. The debt is callable at par in 2021. Yields were cut between two and three basis points from Monday’s retail pricing.
Within the $63.2 million series, $48 million of Series 2011 A and $15.2 million of Series 2011 B bonds were offered.
Yields on the series A ranged from 1.35% with a 2% coupon in 2012 to 5.43% with a 5.25% coupon in 2041.
Bonds on the series B yielded 5.43% with a 5.25% coupon in 2041.
RBC Capital Markets priced $163.5 million of School District of Philadelphia GOs. The bonds are rated Aa2 by Moody’s, A-plus by Standard & Poor’s, and AA by Fitch. The deal was split into two series, consisting of $146.3 million of federally taxable qualified school construction bonds and $17.2 million of tax-exempt bonds. Details were not available at press time.
In other news, market participants have said the bankruptcy filing by Jefferson County, Ala., did not take anyone by surprise and should have no impact on other local credits. But secondary trades of Jefferson County sewer revenue bonds seem to show the market was shocked by the news.
“In our view, the muni market continues to be a target of observers who do not necessarily know the municipal market very well, but who appear to be able to draw attention through soundings of impending doom,” Citi analysts wrote.
And indeed, bonds from an interdealer trade of sewer revenue 5s of 2038 yielded 0.92% in late November, 52 basis points higher than where they traded in early August. A dealer bought from customer the same CUSIP at 1.14%, 59 basis points higher than in early August.
In late November, a dealer sold to a customer sewer revenue 5s of 2041 at 0.75%, 43 basis points higher than where they traded in late July. A dealer bought from a customer the same CUSIP at 1.04%, 70 basis points higher than where they traded late July.
A dealer sold to a customer sewer revenue 4.75s of 2038 at 0.80%, 51 basis points higher than where they traded in early August. Bonds from an interdealer trade of the same CUSIP yielded 0.92%, 63 basis points higher than where they traded early August. And a dealer bought from a customer the same CUSIP at 1.07%, 46 basis points higher than where they traded early August.
“The court is likely to consider sewer bondholders as secured creditors given that a statutory lien on sewer revenue secures that debt,” wrote Moody’s senior analyst Christopher Coviello. “Still, it’s doubtful that sewer bondholders will be fully repaid since annual sewer revenue of $298 million is well below the amount needed for timely repayment of the $3.1 billion of outstanding sewer debt.”
Jefferson County sewer revenue debt made up almost three quarters of all Jefferson County outstanding debt, and is rated the lowest, with a Caa3 rating and on review for a downgrade by Moody’s.
In economic news, gross domestic product increased at an annual rate of 2.0% the preliminary third quarter report by the Commerce Department showed. The gain is less than the advance reading of 2.5% growth, but higher than the 1.3% reported for the second quarter.
“The U.S. economy didn't grow quite as quickly as initially estimated, with the revisions to the GDP report suggesting that we are getting less momentum from domestic demand,” wrote Jennifer Lee, senior economist at BMO Capital Markets, adding, however, that it was the ninth consecutive quarterly improvement.
