NEW YORK – The tax-exempt market was quiet Monday as dealers focused on the primary for direction.
Two of the largest negotiated deals were priced for retail while dealers looked ahead Tuesday’s competitive calendar for the largest deal of the week.
“Other than the big primary deals, the market is quiet,” a New Jersey trader said. “It is flat to stronger. As long as we have the Fed kind of buying Treasuries, we’re not getting much movement here.”
Other traders agreed. “Munis are flat,” a New York trader said. “It’s a quiet Monday.”
Munis were slightly stronger Monday, according to the Municipal Market Data scale. Yields inside five years were steady while yields fell one and two basis points outside six years.
The two-year yield closed steady at 0.33% for the sixth consecutive trading session. The 10-year yield fell two basis points to 1.95% while the 30-year yield dropped one basis point to 3.31%.
Treasuries were flat to stronger. The benchmark 10-year yield and the 30-year yield each fell one basis point to 1.98% and 3.12%. The two-year was steady at 0.27%.
In the primary market, Wells Fargo priced for retail $556 million of New York Metropolitan Transportation Authority revenue bonds, rated A2 by Moody’s Investors Service and A by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.65% with a 3% coupon in 2013 to 4.36% with a 4.25% coupon in 2042. Bonds maturing in 2012 were offered via sealed bid. Credits maturing between 2024 and 2026, in 2028, 2029, 2032, 2041 and 2047 were not offered for retail. The bonds are callable at par in 2022.
The New Jersey trader said the retail pricing was right on the market. “Yields came out about plus 90 to the MMD scale in retail,” he said. “It’s right on the market and not attractive to us. Plus, the credit has been suspect as of late so it’s not getting a lot of follow through in the secondary.”
He added that the deal is coming with a lot of discount coupons – like 3% and 4%. “But, that doesn’t always bode well. People still seem to like the 5s,” he said. “But on retail, they get a gauge on what people are feeling, who is putting in for what, and if they don’t get a good response they might cheap it up in pockets.”
Bank of America Merrill Lynch priced for retail $491.8 million of Atlanta airport general revenue bonds, rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch. Institutional pricing is expected to come Tuesday.
Yields on the first series, $65.3 million on airport general revenue bonds not subject to the alternative minimum tax, ranged from 0.35% with a 2% coupon in 2013 to 4.05% with a 4% coupon in 2037. Bonds maturing in 2042 were not offered for retail. The bonds are callable at par in 2022.
Yields on the second series, $191.2 million of airport general revenue bonds not subject to the alternative minimum tax, ranged from 0.35% with a 3% coupon in 2013 to 2.72% with a 5% coupon in 2022. Credits maturing in 2016, 2018, 2020, and between 2023 and 2042 were not offered for retail. The bonds are callable at par in 2022.
Yields on the third series, $235.3 million of airport general revenue bonds subject to the alternative minimum tax, ranged from 0.60% with a 4% coupon in 2013 to 3.27% with a 5% coupon in 2022. Credits maturing between 2023 and 2042 were not offered for retail. The bonds are callable at par in 2022.
In the competitive market, Bank of America Merrill Lynch won the bid for $78.9 million of Albuquerque, N.M., general obligation bonds, rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch. Prices were not available by press time.
Looking ahead to Tuesday, Pennsylvania is expected to auction the largest deal of the week – $950 million of GOs in the competitive market. The credit is rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
Traders said they expect many bidders as banks vie for top rankings in the underwriting leagues. “The calendar is on light side this week and is going to become lighter in the next weeks so near term, this is a very good opportunity to get one big deal under people’s belt,” said Otis Casey, director of credit research at Markit.
“In terms of timing from the macro perspective, it’s probably not a bad time to be priced competitively from an issuer’s perspective because we have seen evidence of a flight to quality as people have renewed focus on European risk,” he added. “So municipals have become more attractive relative to other asset classes.”
One trader said 10-year Pennsylvania GOs were trading 19 basis points above the MMD scale Monday and expects the deal to come within a few basis points of that.
Data compiled by Markit showed yields were much more varied across the curve when compared to the MMD scale. In the secondary market Friday, bid yields on Pennsylvania GOs ranged from three to 32 basis points higher than comparable MMD yields.
Spreads between Pennsylvania and MMD yields were much wider in the short and long end of the curve, and much more compressed in the belly. Inside three years, Pennsylvania GOs yielded 25 to 29 basis points above the MMD scale while yields on the 16- to 19-year were 18 to 32 basis points higher than the respective MMD yields.
Yields on the four- to 15-year maturities were only three to 18 basis points higher than the comparable MMD yields.
In the wider secondary market Monday, trades reported by the Municipal Securities Rulemaking Board showed firming over the last week.
A dealer bought from a customer San Antonio, Texas, Water Revenue System 5s of 2032 at 0.30%, 13 basis points lower than where they traded last week. Another dealer bought from a customer Fairfax County Water Authority 5s of 2028 at 2.67%, six basis points lower than where they traded Friday.
A dealer sold to a customer Delaware 5s of 2014 at 0.33%, five basis points lower than where they traded two weeks prior. Another dealer sold to a customer Public Schools of the City of Ann Arbor, Mich., 4s of 2022 at 2.32%, two basis points lower than where they traded last week.
