The tax-exempt market ended softer Tuesday as traders said June 1 reinvestment money wasn’t flowing into munis as expected and trading was sluggish.
Soft demand translated into a weak primary market with Massachusetts reducing the size ofa general obligation bond deal.
“I’m getting weak bids on some bonds I put out,” a New York trader said. “I think people are just trying to get bargains in this crappy market. Pick off cheap stuff in case someone has to sell. But the bids are two-and-a-half points from what I’m asking. Within a point is doable, but almost three is not.”
Other traders called the market disappointing. “We were hoping the market would feel better but we are not seeing it,” a Los Angeles trader said. “Yields are off a little but I think it’s been disappointing today.”
This trader added the estimated $30 billion plus in June 1 reinvestment money was more active in the market Monday. “We are not seeing much of that money today. It seems slow and quiet. The market has no energy and no excitement.”
“It’s disappointing because stocks are down and Treasuries are doing nothing and there are not enough deals to give the market direction.”
That lack of energy translated into Massachusetts cutting its deal to less than $700 million from the planned issue of more than $1 billion.
“They couldn’t get the bigger size done,” the New York trader said. “Demand wasn’t there.”
Bank of America Merrill Lynch priced for institutions $675.6 million of Massachusetts bonds, rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
The first series was downsized to $100 million from $400 million. The bonds yielded 4.05% with a 4% coupon in 2043. The bonds are callable at par in 2021. Yields were flat from Monday’s retail pricing after being increased five basis points from Friday’s retail pricing.
Bonds on the second series, $100 million of GO green bonds, yielded 3.85% with a 3.75% coupon, 3.67% with a 4% coupon, and 3.20% with a 5% coupon in a split 2033 maturity. The bonds are callable at par in 2021. Yields were flat from Monday’s pricing after being increased five basis points from Friday’s retail.
Yields on the third series, $475.6 million of GO refunding bonds, ranged from 0.64% with 4% and 5% coupons in a split 2016 maturity to 2.39% with 3% and 5% coupons in a split 2023 maturity. Bonds maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2023. Yields were steady Tuesday after they were raised between five and eight basis points from the first pricing.
“When rates rise it’s not great for a borrower but you can manage,” said Colin MacNaught, assistant Treasurer for debt management of Massachusetts. “When rates are volatile and price discovery is difficult it makes it especially challenging to borrow. We think our bonds should be priced within a certain range and when we don’t have confidence that we are going to be able to price in that range, it gives us pause. We plan to be in the market again and will come back with more new money next time.”
“We feel really good that we brought in 10 new investors that normally wouldn’t invest because of those green bonds,” MacNaught said.
In the west, Goldman, Sachs & Co. priced and repriced $1 billion of county of Los Angeles tax and revenue anticipation notes, rated MIG-1 by Moody’s, SP-1-plus by Standard & Poor’s, and F-1-plus by Fitch.
The first series of $300 million yielded 0.16% with a 2% coupon in 2014. The second series of $700 million yielded 0.18% with a 2% coupon in 2014. Yields on the second series were lowered one basis point from preliminary pricing.
Siebert Brandford Shank & Co. priced $293.1 million of City of Los Angeles wastewater system revenue bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
The first series of $149.4 million yielded 3.74% with a 5% coupon in 2043. The bonds are callable at par in 2023.
Yields on the second series of $143.7 million ranged from 0.18% with a 2% coupon in 2014 to 3.50% with a 5% coupon in 2035. The bonds are callable at par in 2023.
In the competitive market, Texas A&M University auctioned $305.9 million of revenue financing system bonds in two pricings, rated Aaa by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Citi bought the first pricing of $264.9 million. Yields ranged from 0.18% with a 3% coupon in 2014 to 4.04% with a 4% coupon in 2043. The bonds are callable at par in 2023.
JPMorgan won the bid for the second pricing of $41 million. Yields ranged from 0.18% with a 2% coupon in 2014 to 2.14% with a 5% coupon in 2022.
In the secondary market, trades compiled by data provider Markit showed weakening. Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.125s of 2024 jumped eight basis points to 6.12%.
Yields on Puerto Rico Electric Power Authority 5s of 2032 and Texas Transportation Commission 5s of 2041 increased three basis points each to 5.21% and 4.25%, respectively.
Yields on Tennessee Energy Acquisition Crop. 5s of 2024 and Richmond, Va., Public Utility 5s of 2043 increased two basis points each to 3.64% and 3.51%, respectively.
Yields on the Municipal Market Data scale ended as much as five basis points weaker Tuesday. The 10-year yield rose two basis points to 2.10% and the 30-year yield increased five basis points to 3.29%. The two-year was steady at 0.30%.
Yields on the Municipal Market Advisors 5% scale ended as much as five basis points higher. The 10-year yield rose two basis points to 2.16% and the 30-year yield rose five basis points to 3.39%. The two-year finished steady at 0.36% for the fifth session.
The Treasury yield curve steepened. The two-year yield fell one basis point to 0.30%. The benchmark 10-year yield rose one basis point to 2.14% and the 30-year yield increased three basis points to 3.30%.