NEW YORK – Traders in the tax-exempt market said the tone felt firmer Tuesday as many deals were priced ahead of schedule to take advantage of demand.

The holiday-shortened week also forced traders to participate in the market before liquidity shuts down as the holiday approaches.

“Munis are definitely firmer,” a Los Angeles trader said. “It feels like it’s a good week. Supply will pick up again going forward – especially in California. But the short week this week is good to get in and get deals done.”

The biggest deal of the week, $1.5 billion of California Statewide Communities Development Authority revenue bonds sale for Kaiser Permanente, is going very well, he said.

He added the $190 million Public Facilities Financing Authority of the city of San Diego was pushed up a day. “They did retail today and institutional and accelerated the institutional period on good demand.” The deal was originally expected to price Wednesday.

The third offering to be moved up was the New Jersey Economic Development Authority’s $1 billion cigarette tax deal, which was priced Monday instead of the scheduled Tuesday.
“Munis are a little busy,” a New York trader said. “It seems people want to put on positions now.”

He added because of the holiday-shortened week, “liquidity is going to dry up this afternoon into tomorrow. So traders take advantage when they can.”

But, munis were slightly weaker Tuesday, according to data compiled by Markit. Out of a sample of five CUSIP numbers, four muni bonds were weaker with yields rising anywhere from one to 15 basis points, including Massachusetts Water Resources Authority 5.25s of 2017, Ohio 5s of 2021, and Florida Board of Education 5s of 2021.

Munis were also weaker according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years jumped two and three basis points.

On Tuesday, the two-year yield finished steady at 0.36% for its 12th consecutive trading session while the 10-year yield and 30-year yield each rose three basis points to 2.16% and 3.42%.

Treasuries were stronger Tuesday morning then collapsed after the Federal Open Market Committee minutes were released. For the day, yields ended up across the board. The two-year yield jumped four basis points to 0.37% while the 30-year yield spiked up six basis points to 3.41%. The benchmark 10-year yield soared seven basis points to 2.28%.

The FOMC generally felt that moderate expansion of the economy continued and although the outlook was “a bit stronger overall,” it was still “broadly similar” to conditions when the FOMC last met in January. The committee agreed to keep the target range for the federal funds rate at 0 to 0.25%.

“The minutes of the March 13 FOMC meeting suggest waning support for additional policy easing, thus spurring a sharp increase in Treasury yields,” wrote Sal Guatieri, senior economist at BMO Capital Markets. “Only ‘a couple’ members seemed to favour more stimulus if the expansion ‘lost momentum’, fewer than suggested in January when ‘a few’ members were leaning toward additional action unless the economy strengthened.”

“All in, the easing door may be closing but it’s unlikely to swing in the other direction unless the expansion picks up,” Guatieri wrote. “Given our outlook for modest to moderate growth in the next two years, we continue to expect steady rates until the back half of 2014.”

In the primary market, Citi priced the largest deal of the week, California Statewide Communities Development Authority revenue bonds for Kaiser Permanente. The bonds are rated A-plus by Standard & Poor’s and Fitch Ratings. Pricing details were not available by press time.

Barclays priced $312.7 million of South Carolina Public Service Authority Santee Cooper revenue obligation bonds – originally expected to be $575 million – rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch.

Yields ranged from 0.40% with a 3% coupon in 2013 to 3.96% with a 5% coupon in 2043. The bonds are callable at par in 2022.

JPMorgan priced $213.4 million of Arizona Board of Regents revenue and refunding bonds for Arizona State University, rated Aa3 by Moody’s and AA by Standard & Poor’s.

Yields ranged from 0.60% with 2% and 4% coupons in a split 2014 maturity to 3.85% with a 5% coupon in 2042. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.

In the competitive market, JPMorgan won the bid for $152.1 million of Hartford County Metropolitan District general obligation bond anticipation notes. The notes yielded 0.12% with a 2% coupon.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening over the past week.

A dealer bought from a customer Pennsylvania 5s of 2015 at 1.82%, 122 basis points higher than where they traded two weeks prior.

A dealer sold to a customer Florida Department of Transportation 5s of 2024 at 2.76%, 38 basis points higher than where they traded last week.

A dealer sold to a customer Fairfax County, Va., 5s of 2024 at 2.47%, two basis points higher than where they traded last week.

Another dealer sold to a customer Illinois taxable 4.071s of 2014 at 1.90%, two basis points higher than where they traded last week.

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