The tax-exempt market turned its attention to the primary market Wednesday as the week’s biggest deals came to market.
Traders said given that many deals were over $500 million or even $1 billion, the market reacted with moderate reception. Outside the primary, all attention turned to reaction of Stockton declaring bankruptcy late Tuesday evening.
“We are doing OK,” a Los Angeles trader said. “We were hoping they would do better but there is certainly a lot of news out here,” referring to Stockton. “There are a couple of deals out there that are trying to find footing. If you price attractively enough it does well. We are seeing one deal that has been bumped 10 basis points because it came in a little too cheap.”
Another trader said the market was busier Wednesday. “It’s a bit busy,” a New York trader said, adding munis were mostly steady in secondary trading.
The biggest news to hit the market was undoubtedly Stockton saying it was filing for bankruptcy protection. But most traders agreed reaction was muted. “It’s already priced into the market,” the New York trader said.
“The Stockton situation was so anticipated that there is no surprise in the market,” the Los Angeles trader said. “There are a lot of Stockton bonds out there for bid and that’s certainly been the case over the last few days. But the market is treating them selectively. There are better bids on school bonds. There are just a lot of them out there.”
He added that “If you’re surprised it happened I don’t know where you’ve been for the last three months.”
Dan Toboja at Ziegler Capital Markets agreed there were no big problems. “California is generally not reacting, but California has been rich for a while. Most people seem unconcerned about broader implications right now. If the headlines continue we might see some reaction, but everyone knew the situation Stockton was in, and after Vallejo, there’s some familiarity with the process.”
Munis ended steady for the third consecutive trading session, according to the Municipal Market Data scale. The 10-year yield ended flat at 1.86% for the ninth trading session while the two-year ended steady at 0.32% for the 19th straight session. The 30-year yield finished flat at 3.16% for the fourth session.
Treasuries were slightly stronger. The two-year yield fell one basis point to 0.31%. The benchmark 10-year yield and the 30-year yield also fell one basis point each to 1.63% and 2.70%.
In the primary market, Loop Capital Markets priced the biggest deal of the week — $1.26 billion of City of Los Angeles tax and revenue anticipation notes, rated MIG-1 by Moody’s Investors Service, SP-1-plus by Standard & Poor’s, and F1-plus by Fitch Ratings.
Bonds on the first series of $252.1 million yielded 0.18% with a 2% coupon in 2013. Bonds on the second series of $251.7 million yielded 0.19% with a 2% coupon in 2013. Bonds on the third series of $251.3 million yielded 0.20% with a 2% coupon in 2013. Bonds on the fourth series of $250.8 million yielded 0.21% with a 2% coupon in 2013. Bonds on the fifth series of $250.4 million yielded 0.22% with a 2% coupon in 2013.
Bank of America Merrill Lynch priced for retail $1 billion of New York’s Metropolitan Transportation Authority bonds, rated A2 by Moody’s and A by Standard & Poor’s and Fitch. Institutional pricing is expected Thursday.
Yields ranged from 1.03% with 3% and 4% coupons in a split 2015 maturity to 4.07% with a 4% coupon in 2032. Bonds maturing between 2024 and 2029 were not offered for retail. The bonds are callable at par in 2022.
Bank of America Merrill Lynch priced $642.9 million of Oregon full-faith-and-credit tax anticipation notes, rated MIG-1 by Moody’s and F1-plus by Fitch. The bonds yielded 0.18% with a 2% coupon in 2013.
Bank of America Merrill Lynch priced $512.2 million of Washington Health Care Facilities Authority revenue bonds for Providence, rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields ranged from 0.77% with a 3% coupon in 2014 to 4.22% with a 5% coupon in 2042. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
Morgan Stanley priced $502.9 million of Long Island Power Authority electric system general revenue bonds, rated A3 by Moody’s, A-minus by Standard & Poor’s, and A by Fitch.
Bonds on the first series of $250 million yielded 3.97% with a 5% coupon in 2037 and 4.03% with a 5% coupon in 2042. The bonds are callable at par in 2022.
Yields on the second series of $252.9 million ranged from 0.82% with a 3% coupon in 2014 to 3.62% with a 5% coupon in 2029. Credits maturing in 2013 were not formally re-offered. The bonds are callable at par in 2022.
In the competitive market, JPMorgan won the bid for $118.2 million of Rhode Island Health and Educational Building Corporation revenue bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s. The bonds yielded 1.87% with a 5% coupon in 2021 and 2.01% with a 5% coupon in 2022.
In the secondary market, trades compiled by data provider Markit showed a mix of strengthening and weakening. Yields on Port Authority of New York and New Jersey 5s of 2021 fell four basis points to 2.13% while Harris County, Texas, 5s of 2020 fell two basis points to 1.75%. Yields on California 5s of 2018 dropped one basis point to 1.71%.
Other trades were weaker. Yields on New Jersey’s Tobacco Settlement Financing Corp. 5s of 2041 and Dormitory Authority of the State of New York 5s of 2024 each rose two basis points to 6.83% and 1.94%.