Traders in the tax-exempt market disagreed Tuesday about the level of activity in the market as some said it was a quiet holiday-shortened trading week while others said activity remained fairly high.
The week’s largest deal hit the market Monday and the remainder of the slim calendar came Tuesday. Pricing of new issues is expected to drop off significantly Wednesday.
“It’s already pretty dead,” a Boston trader said. “The week is basically over. The deals that are out there are doing fine and the market is definitely steady. But the phone lines are dead.”
By mid-morning Wednesday, he added, the muni market will basically be closed.
Still, not all traders said activity was slowing and a New York trader said retail was still active in the market — keeping activity fairly high.
“We have already equaled our 30-day average and there’s still a fair amount of time left in the day,” said Ed Holleran at TMC Bonds. “I think the key is that retail has been active. I think it’s going to be another good day in Muniland.”
He added by the end of the day Tuesday, customers had purchased 94% of their normal 30-day average. Dealers executed 95% of their 30-day average on trades of $1 million or more and 90% of their 30-day average on trades less than $1 million.
In the morning trading session, a second New York trader said the market was busy trying to get everything done before the holiday.
“It’s a bit busy,” a New York trader said. “People are getting things done before Thanksgiving.”
In the primary market, Jefferies & Co. priced $243.4 million of Florida’s Orlando Utilities Commission utility system revenue refunding bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.21% with a 1.5% coupon in 2013 to 2.19% with a 5% coupon in 2025.
JPMorgan priced for institutions $145.5 million of Connecticut Housing Finance Authority housing mortgage finance program bonds, rated triple-A by Moody’s and Standard & Poor’s.
Bonds on the first series of $103 million were priced at par to yield from 0.25% in 2023 to 3.40% in 2042. The bonds are callable at par in 2021.
Bonds on the second series, $42.5 million of bonds subject to the alternative minimum tax, were priced at par to yield from 0.45% and 0.50% in a split 2014 maturity to 0.60% and 0.70% in a split 2014 maturity. Bonds maturing in 2035 yield 2.00% with a 2.75% coupon.
RBC Capital Markets priced $128.7 million of Dormitory Authority of the State of New York Rochester Institute of Technology revenue bonds, rated A1 by Moody’s. Prices were not yet available.
Jefferies & Co. priced for institutions $88 million of University of Connecticut special obligation student fee revenue bonds, rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Yields ranged from 0.20% with a 1.5% coupon in 2013 to 2.50% with a 3% coupon and 2.17% with a 5% coupon in a split 2029 maturity. The bonds are callable at par in 2022.
In the secondary market, trades compiled by data provider Markit showed mostly weakening.
Yields on Pennsylvania Turnpike Commission 5s of 2027 and University of Arizona Board of Regents 5s of 2027 jumped three basis points each to 3.01% and 2.23%, respectively.
Yields on Port Authority of New York and New Jersey 4.926s of 2051 increased three basis points to 4.30% while Cherokee County, Ga., School System 5s of 2022 rose two basis points to 1.78%.
Still, other trades showed strengthening. Yields on Hudson Yards Infrastructure Corp. 5s of 2047 plunged 12 basis points to 2.76% while Puerto Rico Commonwealth Aqueduct and Sewer Authority 5s of 2033 fell two basis points to 4.96%.
After setting fresh record lows over the previous two weeks, the market took a breather Monday and Tuesday. The 10-year Municipal Market Data yield rose one basis point to 1.51%, hovering just above the record low of 1.50% set last Friday.
The 30-year MMD yield remained unchanged for the third session as its record low of 2.54% set Friday. The two-year finished steady at 0.30% for the 38th consecutive trading session.
Treasuries weakened for the second session Tuesday. The benchmark 10-year yield and the 30-year yield jumped five basis points each to 1.66% and 2.81%, respectively. The two-year increased three basis points to 0.27%.
“The election-assisted municipal bond rally, which included nine consecutive trading sessions of higher prices, finally paused as prices were relatively unchanged,” wrote Anthony Valeri, senior vice president of research at LPL Financial. “Since the election, municipals have outperformed Treasuries notably on the prospect of higher taxes, with the average 10-year AAA-rated municipal yield falling by 0.24% compared to a 0.14% decline in the 10-year Treasury yield.”
He added, “Average AAA-rated municipal bond yields are now below Treasuries for the first time since the first quarter of 2012, with the 10- and 30-year municipal yields at 95% and 96% of comparable Treasury yields, respectively.”
In economic news, Federal Reserve Board Chairman Ben Bernanke spoke and said economic recovery needs to be established before the Fed starts to normalize policy.
Bernanke defended the FOMC’s stance to remain highly accommodative until mid-2015 and said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In other words, we will want to be sure that the recovery is established before we begin to normalize policy. We hope that such assurances will reduce uncertainty and increase confidence among households and businesses, thereby providing additional support for economic growth and job creation.”
He added headwinds include the looming fiscal cliff. And while regulators need to address the federal budget, policymakers need “to avoid unnecessarily adding to the headwinds that are already holding back the economic recovery.”