NEW YORK — A slew of large new deals flooded into the municipal market Tuesday, raising yields and pushing the secondary market into the shadows.
The wave of heavy-hitting deals from issuers in New York City, San Antonio, San Francisco, and Massachusetts met an investor group rich with cash, hungry for tax-exempt paper, yet discouraged by current rock-bottom yields. Subsequently, some saw concessions of up to 10 basis points on the day, traders said.
The secondary market was a ghost town Tuesday, a trader in Los Angeles said. Prices there needed to fall for investors to even look, much less bite, he added, but few were interested.
“Certainly, if you want retail to do anything, you need more than the institutional spread in there,” the trader said. “There just isn’t a lot of activity out there. So, the reason why you might see more deals with a retail-type of spread built into them, and the yield adjusting accordingly, is just because they’re migrating toward their audience, which is retail.”
Tax-exempt yields saw increases across most of the curve, according to the Municipal Market Data scale. Yields out to three years were two basis points higher, but were unchanged at the four- and five-year marks.
Bonds maturing from six and eight years on the yield curve rose one to three basis points. Yields nine years and beyond were up four or five basis points.
The benchmark 10-year AAA yield and the 30-year yield each closed Tuesday five basis points higher, at 1.83% and 3.14%, respectively. The two-year yield rose two basis points to 0.33%, after 24 straight trading sessions at 0.31%.
Like their muni cousins, Treasury yields finished the day higher, but not by as much. The benchmark 10-year Treasury yield rose three basis points to 1.78%.
The 30-year yield, which moved little through Monday’s session, jumped six basis points to 2.87%. The two-year yield ticked up one basis point to 0.31%.
A large calendar is good for the market, even at these low levels, industry pros say. Demand remains strong among investors, and should increase.
That’s because the money that’s been building on investors’ balances should grow considerably over the next couple of months, wrote Alan Schankel, an analyst at Janney Capital Markets, in a market post. In fact, proceeds from maturing and redeemed pre-refunded bonds will continue to rise in that time.
“Including coupon payments,” Schankel wrote, “as much as $70 billion of reinvestment funds will be seeking bonds in June and July.”
Although traders could view this week as a holiday-shortened one, since an early close is recommended Friday, the industry anticipates a decent uptick in the primary. Muni volume estimates hold that $9.19 billion will reach the market, compared with $6.83 billion that arrived last week.
Much of Tuesday’s calendar pushed muni yields higher. A lot of the new deals that were priced packed a lot of size in the 10- to 15-year range and didn’t see as good an order flow as underwriters suspected they would.
“It’s a little softer out there,” a trader in Pennsylvania said. “A lot of deals are getting jammed in today and tomorrow because of the three-day weekend.”
Yields were up to 10 basis points higher in the second day of the retail order period for the week’s biggest deal.
Bank of America Merrill Lynch continued taking retail orders for $800 million of New York City general obligation bonds in two series. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields for the first series, $49.4 million, ranged from 0.60% with a 2.00% coupon in 2014 to 2.60% with a 3.00% coupon in 2024. Credits maturing in 2012 and 2013 were offered in a sealed bid. The bonds are callable at par in 2022.
Yields for the second series, $750.6 million, ranged from 0.60% with coupons of 4.00% and 5.00% in a split maturity in 2014 to 3.17% with a 4.00% coupon in 2030. Credits maturing in 2013 were offered in a sealed bid.
Those maturing in 2023 through 2027, 2029, and 2031 and 2032 were not offered to retail. The bonds are callable at par in 2022.
But the yields for both series were raised by 10 basis points for two-year and five-year maturities. And they were pushed up five basis points for those credits maturing at the 10-year mark.
B of A also priced $661.8 million of San Antonio electric and gas systems revenue refunding bonds. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s and AA-plus by Fitch.
Yields range from 2.03% with a 5.00% coupon in multiple maturities in 2021 to 2.62 with a 5.00% coupon and 2.77& with a 5.25% coupon in a split maturity in 2025. The bonds are callable at par in 2022.
The week’s two largest competitive deals found bidders in the day’s session. Wells Fargo Securities won $591.6 million of San Francisco Public Utilities Commission water revenue and refunding bonds. The bonds were rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Yields ranged from 3.24% with a 5.00% coupon in 2031 to 3.75% with a 5.00% coupon in 2043.
The bonds are callable at par in 2022. As the afternoon wore on, Wells Fargo upsized the deal by $20 million.
Also, Bank of America Merrill Lynch won $350 million of Massachusetts general obligation bonds. The bonds were rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields ranged from 2.30% with a 5.00% coupon in 2024 to 3.85% with a 4.00% coupon in 2042. Credits maturing in 2023 were sold but not available. The bonds are callable at par in 2020.
The equities markets saw modest dips and gains on the day. The Dow Jones Industrial Average fell by less than two points.