With the majority of new issues priced earlier in the week, the tax-exempt market took direction from Treasuries as investors avoided risker securities following poor economic data Thursday morning.
The week’s last major deal came to market Thursday as Morgan Stanley sold $450 million of Dallas Fort Worth International Airport joint revenue improvement bonds, rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A by Fitch Ratings.
Yields ranged from 3.01% with a 5% coupon in 2026 to 4.35% with a 4.125% coupon in 2050. The bonds are callable at par in 2022.
The market was otherwise quiet. “Munis are probably better by a basis point or two out past 10 years,” a Virginia trader said. “But it looks like they are lagging the Treasury rally. There is a focus on what new issuance there is and secondary trading seems spotty.”
Other traders said munis weren’t following Treasuries higher after reports on housing starts and manufacturing missed economists’ forecasts. “The secondary still looks slow,” a New York trader said. “The primary looks good since new issue volume is down and there is lots of cash coming in the next three months. But there is not much secondary.”
Elsewhere in the primary, JPMorgan priced $303.1 million of Louisiana gasoline and fuels tax second lien revenue refunding bonds, rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
The first series of $200 million mature in 2043 with a 2017 put date. The bonds were priced at par, yielding 70% of the one-month Libor plus 47 basis points. The bonds are callable at par in 2016.
The second series of $103.1 million mature in 2043 with a 2018 put date. The bonds were priced at par, yielding 70% of the one-month Libor plus 55 basis points. The bonds are callable at par in 2017.
JPMorgan priced $161.9 million of Forsyth-Rosebud County, Mont., pollution control revenue refunding bonds for the Puget Sound Energy Project. The bonds are rated A3 by Moody’s and A-minus by Standard & Poor’s.
The first series, $138.5 million of bonds, were priced at par with a 3.90% coupon in 2031. The bonds are callable at par in 2023.
The second series, $23.4 million of bonds subject to the alternative minimum tax, were priced at par with a 4% coupon in 2031. The bonds are callable at par in 2023.
In the secondary, trades compiled by data provider Markit showed mostly strengthening.
Yields on California’s Golden State Tobacco Securitization Corp. 4.5s of 2027 dropped five basis points to 4.60% and San Antonio, Texas, Public Facilities Corp. 4s of 2042 fell four basis points to 4.08%.
Yields on New York State Tollway Authority 5s of 2042 and Austin, Texas, Water and Wastewater System 5s of 2024 slid three basis points each to 3.52% and 2.00%, respectively.
Yields on Pennsylvania 5s of 2023 and San Diego County Water Authority 5s of 2033 fell one basis point each to 2.05% and 2.30%, respectively.
For the week, odd-lot trades compiled by BondDesk Group show there were more sellers this week and fewer buyers.
For the week ending May 15, there were 56,738 buy trades, down from the previous week’s 58,258 trades and lower than the 59,598 trades in the week ending May 1. The number of sell trades increased to 35,609 from 34,211 for the week ending May 8. It was also higher than the 33,500 sell trades for the week ending May 1. The ratio of buy trades to sell trades fell to 1.6 from 1.7.
Dollar volume traded also showed fewer buys and more sells. There were $1.568 billion buy trades versus the previous weeks $1.6 billion. It was also down from $1.615 billion buy trades the week ending May 1.
Sell trades increased to over $1 billion for the week, up from last week’s $956 million sell trades. It also rose from $947 million sell trades the week ending May 1.
Yields on the Municipal Market Data scale as much as four basis points stronger Thursday. The 10-year yield slid two basis points to 1.81% and the 30-year yield dropped three basis points to 2.95%. The two-year held steady at 0.28% for the sixth session.
The Municipal Market Advisors 5% scale also showed yields falling as much as three basis points. The 10-year and 30-year yields dropped three basis points each to 1.86% and 3.07%, respectively. The two-year yield held steady at 0.33% for a fifth consecutive session.
Treasuries posted gains Thursday. The benchmark 10-year and 30-year yields slipped eight basis points each to 1.87% and 3.09%, respectively. The two-year yield fell one basis point to 0.24%.
Treasuries were higher following worse than expected economic news. The Philadelphia Fed Index fell to negative 5.2 in May versus a positive 1.3 in April. Economists had expected a reading of 2.8 for the index.
“The early returns from the regional Fed indicators on manufacturing suggest that industrial activity may have contracted at a modest rate in May,” wrote economists at RDQ Economics. “The problem with this conclusion is that these reports have very little ability to predict national indicators. We do believe that manufacturing is facing headwinds from abroad, however, we believe that manufacturing will overcome these headwinds and continue to expand on balance through the year.”
