The selloff in the tax-exempt market slowed Thursday as buyers decided the increase in yields over the last six weeks was enough to create an entry point back into the market.
"The market has been a disaster the last few days," an Ohio trader said. "Firmness in Treasuries today seems to have helped give munis a little bit of support. I think we finally saw the necessary yield and spread adjustments to get to where we found at least a few buyers."
Other traders agreed the market found its footing Thursday. "The market is quiet which must be a relief after the cuts all week," a New York trader said. "It feels calmer. Treasuries are up so maybe, unlike Wednesday, munis will follow them."
The largest deal in the primary — the $829.4 million Rutgers University bonds — got a better reception than new issues earlier in the week, when investors had been demanding higher yields. The university's deal was three to nine times oversubscribed, traders said. Yields were lowered as much as seven basis points from preliminary pricing in the tax exempt series.
Morgan Stanley priced and repriced the bonds in a taxable and tax-exempt series. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Yields on the first series, $343.2 million of tax-exempt general obligation refunding bonds, ranged from 0.18% with a 1% coupon in 2014 to 4.35% with a 4.25% coupon and 4.10% with a 5% coupon in a split 2036 maturity. The bonds are callable at par in 2023. Yields on bonds maturing between 2029 and 2031 were raised as much as six basis points.
Yields on the second series, $352.4 million of tax-exempt GOs, ranged from 0.18% with a 1% coupon in 2014 to 4.20% with a 5% coupon in 2043. The bonds are callable at par in 2023. .
The third series, $133.8 million of taxable GO refunding bonds, were priced at par to yield from 0.40% in 2014 to 4.712% in 2033. Spreads ranged from 60 basis points to 175 basis points above the comparable Treasury yield.
In the secondary market, trades compiled by data provider Markit showed weakening.
Yields on Florida Board of Education 5s of 2021 and Texas 5s of 2036 jumped six basis points each to 2.26% and 3.56%, respectively.
Yields on New Jersey Tobacco Settlement Financing Corp. 5s of 2041 increased five basis points to 6.48% and New Jersey Turnpike Authority 5s of 2029 rose two basis points to 3.75%.
Yields on Tennessee's Metropolitan Government of Nashville and Davidson County 5s of 2025 and California 5s of 2025 rose three basis points each to 2.79% and 3.27%, respectively.
Liquidity in the secondary also returned to the market as the week progressed. The Bloomberg Valuation Benchmark Municipal Curve, or BVAL, which is evaluated on transactions only, was steady Monday and Tuesday at 2.21% for the 10-year muni yield. When liquidity started returning to the market Wednesday, the 10-year yield jumped 15 basis points to 2.36%. The 10-year yield was steady again Thursday at 2.36%.
The 30-year BVAL yield had more liquidity and slowly rose as the week progressed. The yield jumped seven basis points Monday to 3.41% and increased another four basis points Tuesday to 3.45%. The yield rose another six basis points Wednesday to 3.51% and two basis points Thursday to 3.53%.
With lower prices and rising yields throughout the week, more sellers entered the market to cash in on gains before munis weakened further.
In odd-lot trades of under 100 bonds both the number of trades and par value increased this week and was the highest in five weeks, according to BondDesk Group.
There were 73,841 buy trades for the week ending June 12, up from 72,580 buy trades the previous week. Sell trades rose to 42,360 from the previous week's 40,571.
The ratio of buy trades to sell trades fell to 1.7 from 1.8.
In par value traded, there were $1.953 billion buy trades, up from the previous week's $1.949 billion. Sell trades increased to $1.128 billion, from $1.091 billion.
The par value ratio of buy trades to sell trades slipped to 1.7 from 1.8.
Thursday, yields on the Municipal Market Data scale ended as much as three basis points higher. The 10-year and 30-year yields were flat at 2.27% and 3.52%, respectively. The two-year was also steady at 0.31% for the second session.
In the most recent selloff, muni yields have soared. From May 1, the 10-year yield has jumped 61 basis points from 1.66% to 2.27% Thursday. The 30-year yield jumped 73 basis points from 2.79% on May 1 to 3.52% Thursday.
Muni yields on the Municipal Market Advisors 5% scale also closed as much as three basis points higher. The 10-year and 30-year yields climbed three basis points each to 2.36% and 3.64%. The two-year was steady at 0.39% for the second session.
The MMA yields have spiked over the course of the last six weeks during the most recent selloff. The 10-year yield increased 63 basis points from 1.73% on May 1 to 2.36% on Thursday. The 30-year yield jumped 69 basis points from 2.95% to 3.64%.
Treasuries posted gains Thursday. The benchmark 10-year yield slipped five basis points to 2.18% and the 30-year yield fell four basis points to 3.33%. The two-year yield slid one basis point to 0.32%.