The municipal bond market posted gains on Tuesday as demand matched the uptick in supply this week and muni yields followed Treasury yields lower.

Buyers in the secondary market buoyed munis in the morning and the primary market took the lead in the afternoon.

“It still seems pretty strong,” a New York trader said. “I was hoping it was weaker to try to loosen this market up because we’ve been strong for a while.”

This trader added he was surprised by how strong the market was trading, but said it is being driven by cash on the sidelines. “It felt really weak at the end of last week and Monday was nonexistent with the Jewish holiday. But today is back to the ordinary business.”

In the primary market, the trader said there aren’t balances on the books. “They are pricing to move the deals, but it is ripe. One deal was 15 times oversubscribed,” he said, referring to the $200 million Temple University revenue bonds issued by the Pennsylvania Higher Educational Facilities Authority.

A second New York trader said the secondary was firmer along with the primary. “There is buying,” he said. “It’s a little stronger.”

He added the market is “a smidge” higher as it starts to recover from last week’s selloff after the Fed announced QE3.

Otis Casey, director of credit research at data provider Markit said the market was fairly quiet. “Subdued in cash and quiet in CDS too,” he said. “The MCDX is about 1.5 basis points tighter at the moment.”

The pricing of new deals kicked off Tuesday. Bank of America Merrill Lynch priced for retail $716 million of California’s Bay Area Toll Authority revenue bonds, rated Aa3 by Moody’s Investors Service, AA by Standard & Poor’s and AA-minus by Fitch Ratings. An additional retail order period is expected Wednesday followed by institutional pricing Thursday. Pricing details were not available by press time.

One trader tweeted there were huge levels of interest in the Bay Area deal.

Siebert Brandford Shank & Co. priced for retail $570 million of Connecticut general obligation and GO refunding bonds in three series, rated Aa3 by Moody’s and AA by Standard & Poor’s, Fitch and Kroll Bond Rating Agency. A second retail order period is expected Wednesday followed by institutional pricing Thursday.

The first series, $175 million of GO SIFMA index bonds, were not offered to retail.

Yields on the second series, $325 million of GOs, ranged from 1.79% with 2%, 3%, and 4% coupons in a split 2020 maturity to 3.15% with 3.125% and 4% coupons in a split 2032 maturity. Portions of bonds maturing between 2024 and 2032 were not offered for retail. The bonds are callable at par in 2022.

Bonds in the third series, $70 million of GO refunding bonds, yielded 0.36% with 3% and 4% coupons in 2014 and 0.48% with a 4% coupon in 2015. Bonds maturing in 2013 were offered via sealed bid.

In the secondary market, trades compiled by Markit showed strengthening. Yields on Massachusetts School Building Authority 5s of 2030 and New York’s Triborough Bridge and Tunnel Authority 5s of 2031 fell two basis points each to 2.70% and 2.93%, respectively.

Yields on Virginia Commonwealth Transportation Board 4s of 2037 and West Palm Beach, Fla. Utility System 5s of 2032 fell two basis points each to 3.41% and 3.00%, respectively.

On Tuesday, the 10-year Municipal Market Data yield and the 30-year yield fell three basis points each to 1.90% and 3.03%, respectively. The two-year closed at 0.29% for the 38th consecutive session.

Treasuries were stronger Tuesday, but pared most of the gains made in the morning. For the day, the benchmark 10-year yield and the 30-year yield finished down three basis points each to 1.81% and 3.00%, respectively. The two-year yield fell one basis point to 0.26%.

In other muni bond news, traders said Build America Bonds weren’t necessarily trading lower after news Federal funding might be cut by 7.6%.

“There’s not a lot of movement in BABs,” a New York trader said. “Our take is it’s a bunch of posturing. But there are a little more bids-wanted popping out and we are seeing some block sizes. But I don’t think it will have much of an effect.”

A second trader said, “A 7.6% cut doesn’t seem like the end of the world but markets are so paranoid I thought we might see some selling. With the right credit, I would consider adding [BABs] on weakness.”

This trader said there is a dealer with $500 million pieces for bid “It’s a little weaker than yesterday,” he said.

Markit’s Casey said “BABs are still quiet. From the quotations we’re seeing in the aggregate there was a very slight trend showing BABs being a little weaker overall. However, there were no noteworthy moves for any particular issues and quotations were fairly mixed.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.