NEW YORK - The municipal market was unchanged to slightly firmer Thursday amid light to moderate secondary trading activity.
Traders said tax-exempt yields were mostly flat with some slight gains in the intermediate sector.
“There’s maybe a bit of an uptick around 10 to 15 years out,” a trader in Los Angeles said. “Overall, though, I’m not seeing too much movement. I think we’re somewhat flat with somewhat of a firmer tone. There are deals getting done, but there isn’t an overwhelming amount of activity by any means.”
Municipal Market Data's triple-A scale yielded 2.53% in 10 years Thursday, down two basis points from Wednesday’s 2.55%, while the 20-year scale yielded 3.48%, matching Wednesday. The scale for 30-year debt was also unchanged from Wednesday, at 3.86%.
Traders also noted a lack of retail demand.
“It’s horrible,” a retail trader in New York said. “I’ve cut offerings three, four basis points and I’m still not getting anything done. The bid side is absent, offerings today are even lower than yesterday.”
Thursday’s triple-A muni scale in 10 years was at 95.5% of comparable Treasuries and 30-year munis were at 95.3%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 105.2% of the comparable London Interbank Offered Rate.
The Treasury market mostly showed gains Thursday. The benchmark 10-year note was quoted recently at 2.66% after opening at 2.71%. The 30-year bond was quoted recently at 4.05% after also opening at 4.05%. The two-year note was quoted recently at 0.38% after opening at 0.42%.
With Treasuries selling off 20 basis points in the past 10 days, Kenneth Gibbs, president of the municipal securities group at Jefferies, said municipals were “due for some back-off.”
Gibbs said the tax-exempt market is now more vulnerable to seasonal swings and technical disruptions than it was before the crisis. Back when tender-option bond programs had a bigger presence, arbitrageurs would buy on weakness and sell on strength, keeping ratios to Treasuries stable, he said.
With the TOB industry mostly forced out of the market, a period of heavier supply can push yields up because the arbitrage players aren’t stepping in, he said.
“It’s hard to find players to provide a floor,” Gibbs said. “In the middle of the curve, there’s just not a lot of natural buying power. … On weakness, it gets very weak.”
When asked whether he was concerned about the market’s ability to absorb the supply of new state and local government debt through the end of the year, Gibbs replied: “The paper will get absorbed; the question is at what levels, and how much work it is and how long it takes to get into good hands.”
In the new-issue market Thursday, San Antonio sold $500 million of Build America Bonds in two series.
JPMorgan priced $300 million of BABs for San Antonio which mature in 2041 and yield 5.808% priced at par, or 3.78% after the 35% federal subsidy. The bonds were priced to yield 175 basis points over the 30-year Treasury yield.
Also, Bank of America Merrill Lynch priced $200 million of BABs for San Antonio which mature in 2037 and yield 6.308% priced at par, or 4.10% after the 35% federal subsidy. The bonds were priced to yield 225 basis points over the 30-year Treasury yield.
The credit is rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s, and AA-plus by Fitch Ratings.
Goldman, Sachs & Co. priced $135.0 million of subordinate revenue bonds for the Los Angeles Department of Airports.
The bonds mature from 2021 through 2030, with term bonds in 2035 and 2040. Yields range from 3.93% with a 5% coupon in 2021 to 5.00% at par in 2040.
The bonds, which are callable at par in 2020, are rated A1 by Moody’s and AA-minus by both Standard & Poor’s and Fitch.
Piper Jaffray & Co. priced $102.3 million of Build America Bonds for California’s Riverside Community College District.
The BABs mature in 2035 and 2040, are priced at par to yield 6.971%, or 4.53% after the 35% federal subsidy, and 7.021%, or 4.56% after the subsidy, respectively.
The bonds were priced to yield 295 and 300 basis points over the 30-year Treasury yield, and are callable at par in 2020.
The credit is rated Aa2 by Moody’s and AA by Standard & Poor’s.
The Treasury Department auctioned $29 billion of seven-year notes, with a 1 7/8% coupon, a 1.970% high yield, a price of 99.38. The bid-to-cover ratio was 3.06. The Federal Reserve banks bought $594.5 million for their own account in exchange for maturing securities.
In economic data released Thursday, initial jobless claims dropped 21,000 to a four-month low of 434,000 the week ending Oct. 23. Initial claims for the week ending Oct. 16 were revised upward to 455,000 from 452,000.
Continuing claims fell to 4.356 million for the week ending Oct. 16, the lowest level since November 2008, when they were 4.142 million. Continuing claims for the week ending Oct. 9 were revised upward to 4.478 million.
The jobless figures were lower than the 450,000 initial claims and 4.400 million continuing claims expected by economists estimated, according to Thomson Reuters.
Visible Supply
The Bond Buyer's 30-day visible supply fell $2.420 billion to $12.193 billion. The total is comprised of $2.459 billion of competitive bonds and $9.734 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 42,345 trades of 15,554 issues for volume of $13.93 billion. Most active was taxable New Jersey Transportation Trust Fund Authority 6.104s of 2028 that traded 234 times at a high of 104.175 and a low of 98.700.
