The municipal market ushered in three large New York deals on Tuesday, which failed to give the market the direction it was seeking, and instead saw it remain relatively flat after languishing along with a sleepy secondary market.
Municipal Market Data only bumped yields one basis point in 10 years, and between 2019 and 2024, while the 20 and 30-year triple-A general obligation scale ended at 4.24% and 4.70%, respectively -- mirroring Monday’s close.
“The MMD change was minimal, Treasuries were flat, and the focus was on the New York State deal, the water deal, and the MTA retail order period, but away from the new issue stuff, it was kind of quiet,” said the New York underwriter.
Despite the arrival of a trio of sizable New York deals, municipal traders still described the market as dreary overall – even though it saw the pricing of $830 million of New York State general obligation bonds, the second day of a retail order period for $525 million of New York City Municipal Water Finance Authority revenue bonds, and the retail pricing of $129 million of Metropolitan Transportation Authority dedicated tax bonds.
M.R. Beal & Co. priced the NYC water deal in the second day of its retail order period, ranging from a 2.50% coupon in 2012 with a 0.51% yield, to a 5% coupon in 2043 with a 5.17% yield – well beyond the 4.70% yield on the generic, triple-A GO scale in 2041 at the time of the pricing, according to Municipal Market Data.
Still, the trader said the deal lacked the yield levels on the short end where retail has focused lately.
“The way it came it’s not priced that attractively for retail,” he said.
The water bonds are rated Aa2by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The authority said it hoped to place the bonds with retail buyers, without further sale. Although it reserved the right to accelerate the pricing for institutions, it decided to continue as planned with that pricing on Wednesday – which traders said was much anticipated by the market.
“It’s dull and dismal,” said one New York trader on Tuesday. “All the broker’s brokers are sitting there yawning and doing nothing.”
The deals that were priced Tuesday were “slow-moving” and left much to be desired in terms of yield by retail investors, he said. “It’s very quiet, and retail is inactive in here today.”
The rest of the MMD triple-A scale moved very little on Tuesday as well, with the benchmark 10 year yield ending at a 2.99%, up just one basis point from 2.98% on Monday.
Tuesday’s triple-A muni scale in 10 years was at 89.52% of comparable Treasuries and 30-year munis were at 105.86%, according to MMD, while 30-year tax-exempt triple-A GO bonds were at 111.64% of the comparable London Interbank Offered Rate.
Meanwhile, Wells Fargo Securities won three of the four series in the New York State GO financing, including the largest $484.13 million series of tax-exempt new-money bonds at a true interest cost of 4.25%.
That portion of the deal ranged from a 3% coupon in 2012, which was not reoffered, to a 5% coupon in 2041, which was reoffered to yield a 4.90% -- 20 basis points higher in yield than the MMD scale at the time of the pricing.
The New York trader said the firm struggled with the long maturities right after the deal was done since they were not considered “retail-friendly,” but said the firm managed to find a home for the short bonds.
Wells also won the $98.21 million series of taxable refunding bonds with a TIC of 2.4087%. Bonds ranged from a 0.30% coupon in 2011, which was not reoffered, to 4.10% coupon in 2022 at par. In addition, Wells won the $21.83 million of taxable new-money bonds with a TIC of 3.3701%. That series ranged from a 1% coupon in 2012 reoffered to yield 0.65% to a 4.05% coupon in 2021 which was reoffered at par.
The water bonds are rated Aa2 by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings.
Meanwhile, Bank of America-Merrill, Lynch & Co. won the $232 million series of GO tax-exempt refunding bonds. The series included bonds ranging from a 5% coupon in 2011, which were sold and not reoffered, to a 3% coupon in the 2020 final maturity which was reoffered at a 3.01% yield – 25 basis points higher in yield than the comparable MMD scale.
The state’s GO are rated Aa2 by Moody’s and AA by the two other major rating agencies.
Another New York trader sensed the deals would struggle – even though they were the first sizable offerings in weeks – since there has been too much hanging over the market lately.
“The market is waiting for more supply and to see what happens in the GO political arena, and with interest rates and inflation numbers, plus we are getting closer to tax time,” the second trader added.
“I don’t think the retail bid is that strong out there, and funds are still losing money and hoarding cash,” he explained. “It’s flat and quiet,” he added. “Deals are being priced … I just don’t think there’s a whole lot of interest in the secondary.”
“There’s not really a tone to the market right now,” the second trader added. “It’s fractured. There are certain things that trade and you can’t believe it traded, and there are other things that just sit and you can’t believe it didn’t trade,” he explained. “It’s trade by appointment and just a pretty quiet market.”
Jefferies First Albany also priced for retail investors $129 million of dedicated tax fund bonds for the Metropolitan Transportation Authority, and once the order period ends at 5 p.m. Tuesday will decide to either extend the retail pricing on Wednesday morning, or price the deal for institutions, according to a source close to the deal.
The bonds are structured from 2011 to 2021 – the latter of which carried a 5% coupon and was preliminarily priced to yield 3.70%.
Meanwhile, the Treasury market continued to be stable on Tuesday as economic data remained a distant second to concerns about the extent of nuclear reactor damage in quake-stricken Japan, and political instability in the Middle East and North Africa.
The benchmark 10-year note remained at 3.34% after opening at a 3.33%. The 30-year bond remained at 4.45% after opening at a 4.44%, while the two-year note was quoted at a 0.65%, after opening at a 0.64%.
U.S. stocks edged lower on Tuesday following three days of gains, but further losses may be limited as investors are becoming more sanguine about the continuing problems in Japan, the Middle East, and North Africa, and have adapted to a defensive strategy, according to published reports.
In economic news Tuesday, the Bureau of Labor Statistics reported that there were 1,421 mass layoff actions in February affecting 130,818 workers – both of which are the fewest in 34 months.
The number of mass layoff events in February compares to 1,534 a month earlier, 1,492 a year earlier, and 2,801 two years earlier.
In other economic news, the U.S. dollar hit a 15-month low against other major currencies when it fell 0.2% to 75.249 – the lowest since early Dec. 2009.
Visible Supply
The Bond Buyer’s 30-day visible supply grew by $158.2 million to $8.782 billion. The total is comprised of $2.863 billion of competitive bonds and $5.919 billion of negotiated bonds.
Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,958 trades of 14,797 issues for volume of $7.975 billion. Most active was Puerto Rico public improvement refunding bonds 5 ¾% of 2016 that traded 205 times at a high of 101.87 and a low of 97.09.
