Traders in the municipal bond market hoping to get some relief from a few sizeable deals Thursday were left with little to choose from as two of the week's largest new bond issues were postponed.
In what was scheduled to be the biggest deal of the week, California's Successor Agency to the Inland Valley Development Agency held back $270 million of bonds as legal complications postponed the agency's inaugural bond issue.
In New Jersey, $193 million of Montclair State University bonds, expected to be the week's third biggest negotiated issue, was delayed as the release of an official statement lagged behind schedule. Barclays Capital is the underwriter on both deals.
The Successor Agency bonds could be priced as soon as Friday, while the Montclair bonds are now set to price March 4, sources close to the underwriting process said.
"It's already Thursday afternoon so we're going to come in lower than expected on issuance," one trader in Florida sad in an interview. "It's a quiet week and we're now net negative supply with redemption, calls and maturities."
With just $2.76 billion in new money slated for this week, traders said delays wouldn't be the result of unfavorable market conditions. A lack of new bonds in the market has contributed to a very issuer-friendly market so far this year, with underwriters able to price bonds at low yields.
"Deals that we were involved in did pretty well," said one New York-based underwriter. "It was pretty light new issuance with the calendar so I wouldn't think deals would get pulled at this point."
Sources said the California Successor Agency bonds were delayed due to litigation by the San Bernardino County auditor surrounding the agency's funds.
The Successor Agency is a joint powers authority composed of four local government entities in the state of California: the county of San Bernardino, the cities of San Bernardino, Colton and Loma Linda. The original Inland Valley Development Agency was shut down on Feb. 1, 2012, when the California Supreme Court disbanded the state's 400 redevelopment agencies.
"These development agencies have a lot of legal issues," one California-based trader said in an interview. "It's the nature of entities that used to operate in symmetry with each other and then one day it stopped. All of a sudden informal becomes formal and money gets trapped somewhere."
With the Successor Agency deal delayed, the biggest deal of the week was $227 million of Delaware general obligation bonds. The deal came through the competitive marketplace early Thursday.
Wells Fargo won the bid for $227 million of Delaware GOs. Yields on the bond ranged from 0.14% with a 5% coupon in 2015 to 3.61% with a 3.5% coupon in 2034. The bonds are callable at par in 2022.
The triple-A bonds will be used to pay for capital facilities and to finance capital projects as the state looks to reduce its indebtedness, according to the preliminary official statement.
Municipal bonds firmed Thursday morning following a report by the government that showed persisting economic woes.
The Labor Department Thursday morning announced jobless claims climbed 14,000 in the week ended February 22.
"No question that strengthening yields on munis are related to this, people are looking for lower risk and income given some of this data uncertainty," Brian Rehling, chief fixed income strategist at Wells Fargo Advisors, said in an interview. "The data is not great right now. Unemployment claims climbed last week to about a one-month high, and that's been a trend for the last couple of months."
Yields on bonds maturing from 2021 to 2022 fell the most, by as much as six basis points, while those maturing from 2018 to 2044 all fell as much as five basis points. The rise in the value of bonds was ubiquitous throughout the yield curve, with the short end also sliding two basis points.
Municipal Market Advisors reported bonds with maturities in 2023 and 2024 lost six basis points, while the majority of bonds with maturities beyond 2024 lost five basis points.
Initial jobless claims climbed 14,000 to 348,000 in the week ended Feb. 22, 4% higher than the 3335,000 figure expected by economists polled by Thomson Reuters. Claims for the week ended Feb. 15 were revised to 334,000 from the 336,000 initially reported.
Continuing jobless claims were 2.964 million in the week ended Feb. 15, compared with 2.980 million estimated by economists.
"They're clearly on the path to taper in March," Rehling said. "But going after that, if the numbers continue to disappoint, then yes absolutely it could pause if inflation is below their targets."
The Federal Reserve announced in December it would slow its bond purchasing program by $10 billion a month, then again in January by another $10 billion a month, bringing monthly asset purchases to $65 billion. Sputtering economic growth has led some in the market to believe that a slowdown in the taper could be possible.
"I think it would be a matter of pausing," Rehling said. "I don't think cutting it back from $ 10 billion to $5 billion would be likely, but they could pause it if this data persists. I'm looking for interest rates to be relatively well-contained."
Rehling said he expects interest rates on ten-year maturities to remain between 2.50% and 2.80% for "quite a while."
Treasury yields also sank Thursday morning, with the 30-year falling three basis points to 3.60%, and the 10-year dropping two basis points to 2.65%. The two-year yield was unchanged at 0.33%.
Firming was also reflected in the secondary market, according to data from Markit.
Yields on Andover, Mass., general obligation municipal purpose loans with a 5% coupon maturing in 2023 fell three basis points to 2.35%, while New Jersey Turnpike bonds with a 5% coupon maturing in 2028 strengthened by one basis point to 3.45%.
Yields on New York Dormitory Authority bonds with a 5% coupon maturing in 2041 lost two basis points to 4.15%.
