The municipal bond market ended Wednesday mostly steady despite driving forces that traders said should have provided some direction to the market.
In the morning, the tax-exempt market turned its attention to the primary issuance as the majority of the week's largest deals were priced. By the afternoon, fixed income assets focused on the Federal Open Market Committee meeting announcement.
The FOMC announced it will maintain its 0% to 0.25% target range for the federal funds rate and took no further policy actions.
"The new wrinkle in the Fed's statement is the promise that the 'Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed'," wrote economists at RDQ Economics. "This sets the timeframe for the decision for additional easing at the September 12 to 13 FOMC meeting, which is what we expected."
The economists added, "If the data come up short — especially in the area of employment — then the Fed will likely take further action and, at this point, we suspect that action would be $500 billion or so of additional QE. We still think that the data will just be strong enough to avoid the Fed rolling out QE3 but it is becoming a close call. However, QE3 would also be bad policy because, in our view, the major factor holding the economy back is fears over the outlook for taxes in the U.S. and, with rates already at 0% and the Fed's balance sheet at close to $3 trillion, we do not see how QE would boost the economy."
After that announcement, Treasuries weakened. The benchmark 10-year yield jumped five basis points to 1.53% while the 30-year spiked up four basis points to 2.60%. The two-year yield increased two basis points to 0.24%.
Munis had little time to react after the announcement and ended mostly flat, according to the Municipal Market Data scale. Yields inside 24 years were steady while yields outside 25 years rose one basis point.
The 10-year tax-exempt yield held steady at 1.66% for the third consecutive session, closing above its record low of 1.60% set July 26. The two-year was steady at 0.29% for the fifth consecutive session. The 30-year muni yield rose one basis point to 2.85%, finishing six basis points above its record low of 2.79% set July 25.
To be sure, the Bond Buyer One-Year Note Index, which is based on one-year general obligation note yields, declined two basis points to an all-time low of 0.21%. The previous low was 0.22%, first set back on March 14, and matched three weeks ago on July 11. The index has been tracked since July 12, 1989.
Outside Fed news, the municipal market braced for the week's largest deals in the primary market. The market had mixed results as some deals bumped prices while others had to increase yields on certain maturities.
Goldman, Sachs & Co., priced for retail $1.15 billion of Triborough Bridge and Tunnel Authority — known formally as MTA Bridges and Tunnels — general revenue refunding bonds. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings. Prices were not available by press time.
Barclays Capital repriced $427.3 million of California State University Trustees system-wide revenue bonds, following a retail order period Tuesday. The credit is rated Aa2 by Moody's and A-plus by Standard & Poor's.
Yields ranged from 0.24% with a 2% coupon in 2013 to 3.85% with a 3.75% coupon and 3.35% with a 5% coupon in a split 2042 maturity. The bonds are callable at par in 2022. Yields were lowered from retail pricing Tuesday as much as six basis points on the short-end, but raised four basis points on the 2032 maturity.
Goldman priced $116.5 million of Jacksonville, Fla., sales tax refunding revenue bonds a day ahead of schedule. The bonds are rated A1 by Moody's, A by Standard & Poor's, and A-plus by Fitch.
Yields ranged from 2.75% with a 5% coupon in 2023 to 3.31% with a 5% coupon in 2030. The bonds are callable at par in 2022 except bonds maturing in 2025.
On the competitive calendar, triple-A rated Maryland issued $708.6 million of general obligation state and local facilities loan bonds in four pricings.
Bank of America Merrill Lynch won the bid for $478.7 million. Yields ranged from 0.33% with a 5% coupon in 2015 to 2.84% with a 3% coupon in 2027. The bonds are callable at par in 2020.
JPMorgan won the bid for $191.6 million of refunding bonds. The bonds had 4.5% coupons maturing in 2018, 2019, and 202. Prices were not yet available.
B of A Merrill won the bid for $23 million of taxable bonds. The bonds yielded 0.40% with a 0.40% coupon in 2015.
Morgan Stanley won the bid for $15.3 million of taxable bonds. The bonds yielded 2.75% with a 2.8% coupon in 2027.
"I think Maryland priced on the cheaper side," a New York trader said. "Maybe the bids were kind of weak. But it guarantees they will bump the scale. The sub-5s are cheap."
In the secondary market, trades compiled by data provider Markit showed a mix of firming and weakening. Yields on Illinois' Metropolitan Pier and Exposition Authority 5.25s of 2050 fell six basis points to 3.74% while Massachusetts School Building Authority 4s of 2022 dropped two basis points to 1.95%. California 5.5s of 2023 fell one basis point to 2.08%.
To be sure, yields on Florida 5s of 2020 increased two basis points to 1.56% . Yields on New York 5s of 2026 and California's Tiburon Belvedere Wastewater Finance Authority 5s of 2031 each increased one basis point to 2.19% and 2.53%, respectively.