Market Close: Munis Steady As Primary Well Received, Eyes on FOMC

The biggest deals priced for institutions in the municipal bond market Wednesday and took much of the focus, though traders also kept their eyes on the Federal Open Market Committee announcement.

In its statement, the Fed said it will continue to purchase $45 billion a month of long-term Treasuries and $40 billion a month of mortgage-backed securities to “maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

The FOMC also decided to keep the target range for the federal funds rate at zero to 0.25% and said it currently anticipates that exceptionally low levels for the federal funds rate will likely be warranted as long as the unemployment rate remains above 6.5% and inflation is projected to be no more than 2.5%

Economists were quick to react. “There were few changes to the FOMC statement at the latest meeting and no hint of a near-term change in strategy,” said economists at RDQ Economics. “There is no suggestion at this point that the likely date of first rate hikes has changed from mid-2015. We believe the majority of policymakers at the Fed intend to keep the FOMC’s foot firmly on the QE gas pedal through much, if not most, of 2013.”

Outside the FOMC statement, the municipal primary market was in full force.

“Most of the deals seem to be going OK,” a New York trader said, adding the market was in limbo until the FOMC announcement.

He added the market overall felt one to two basis points cheaper. “You have cross currents with Cyprus and equities doing better. Bonds are off from the highs yesterday, so it’s a mixed market but on net a little weaker.”

Other traders said the market seemed to quiet down after an over-heated Monday and Tuesday. “It’s quiet,” a Chicago trader said. “Some of these issues seem rich to me. I wonder if they’ll get done. The market was looking for any good news to stop the bleeding and Cyprus got everyone excited.”

JPMorgan priced for institutions $1.4 billion of New Jersey Turnpike Authority turnpike revenue bonds, rated A3 by Moody’s Investors Service, A-plus by Standard & Poor’s and A by Fitch Ratings.

Yields ranged from 0.67% with a 3% coupon in 2016 to 4% priced at par, 4.10% with a 4% coupon, and 3.87% with a 5% coupon in a split 2043 maturity. The bonds are callable at par in 2022 except for bonds maturing in 2023. Yields were lowered as much as 12 basis points from retail pricing Tuesday.

Wells Fargo Securities priced for institutions $900 million of New York City Transitional Finance Authority tax-exempt, future tax-secured subordinate revenue bonds, rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.

Yields on the first series, $650 million of tax-exempt subordinate bonds, ranged from 0.30% with a 3% coupon in 2015 to 3.86% with a 4% coupon in 2040. The bonds are callable at par in 2023. Yields were lowered as much as three basis points on maturities inside 2024 but were increased as much as three basis points on the long-end from the second retail order period. Yields were previously lowered as much as three basis points from the first retail pricing Monday.

Yields on the second series, $83 million of future tax secured tax-exempt subordinate bonds, ranged from 0.17% with a 2% coupon in 2013 to 2.94% with a 5% coupon in 2028. The bonds are callable at par in 2023. Yields slid as much as three basis points on maturities inside 2025 but were increased three basis points on the 2028 maturity. Yields were previously lowered as much as four basis points from the first retail pricing Monday.

Yields on the third series, $167 million of future tax secured tax-exempt subordinate bonds, ranged from 0.28% with 2% and 3% coupons in a split 2014 maturity to 3.40% with a 3.25% coupon in 2031. The bonds are callable at par in 2023. Yields dropped as much as three basis points inside 2024 but were raised as much as three basis points on maturities outside 2026. Yields have previously been lowered as much as four basis points from the first retail pricing.

In the competitive market, Citi won the bid for $100 million of New York City TFA taxable bonds. The bonds yielded 3.99% with a 4.2% coupon in 2038 with an 82-basis-point spread to the comparable Treasury yield.

Massachusetts auctioned $525 million of GOs in two pricings, $450 million and $75 million, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Bank of America Merrill Lynch won the bid for $450 million. Yields ranged from 0.66% with a 5% coupon in 2017 to 3.54% with a 4% coupon in 2043. The bonds are callable at par in 2021.

Citi won the bid for $75 million of taxable bonds. The deal was priced to yield from 0.29% in 2014 to 1% in 2018.

On Wednesday, municipal bond market scales ended weaker after posting gains Monday and Tuesday.

Yields on the MMD triple-A GO scale ended as much as one basis point higher. The 10-year yield and 30-year yield rose one basis point each to 1.95% and 3.10%, respectively. The two-year finished flat at 0.31% for the 22nd consecutive session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also ended as much as one basis point higher. The 10-year and 30-year yields rose one basis point each to 2.01% and 3.19%, respectively. The two-year held at 0.33% for the 17th session.

Treasuries were weaker throughout the day, though yields on the long-end rose more after Bernanke spoke. The benchmark 10-year yield increased four basis points to 1.95% while the 30-year yield jumped five basis points to 3.19%. The two-year was steady at 0.25%.

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