Market Close: Taxable Steals Show In Rich Primary, Sideways Secondary

Municipal bond market traders noted a widening divergence in demand between new paper and secondary trades on Wednesday, as investors welcomed taxable deals from Illinois and Massachusetts.

“The primary has been well received this week and last week with a Treasury rally and a decrease in supply,” a New York trader said. “The secondary is a lot of residual pieces left over from earlier competitive deals in the year with lower coupons or aggressive pricing,”

Issuers in Illinois brought the largest deals to market.

Wells Fargo priced $205 million of Illinois Finance Authority taxable debt for the University of Chicago. The bonds are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings. The bonds have a 4.151% coupon in 2045. Prices were not available.

The deal comes after the $149 million tax-exempt portion Tuesday sold by Morgan Stanley. The bonds yielded 0.43% with a 4% coupon in 2015, 3.02% with a 5% coupon in 2034, 4.10% with a 4% coupon in 2049, and 3.50% with a 5.25% coupon in 2052. The bonds are callable at par in 2023. Yields on the 2015 maturity were lowered three basis points in repricing while yields on the 2052 maturity were increased 10 basis points.

Ramirez & Co. priced $127.6 million of Illinois Housing Development Authority federally taxable housing bonds, rated Aa3 by Moody’s and AA by Standard & Poor’s.

The bonds were priced at par ranging from 2015 to 2047. Bonds maturing in 2014 were offered via sealed bid. Spreads ranged from 60 basis points to 235 basis points above the comparable Treasury yield. The bonds are callable at par in 2023.

These bonds also come as Illinois is expected to auction $300 million of sales tax revenue bonds in the competitive market Thursday, rated AAA by Standard & Poor’s and AA-plus by Fitch.

“Taxable is getting a lot of attention with Harvard and Stanford deals coming in recent weeks,” a New York trader said, referring to almost $800 million of taxable deals sold by the colleges last month.

“Everything coming is tight,” a Chicago trader said. “Everyone is expecting a little performance and we got some. So we are waiting for the auctions to see if there is a trend here.”

Demand in the primary did not necessarily translate into stronger secondary trading and most trades appeared to be leftover names from earlier in the year. “There are some bids shown,” the Chicago trader said. “It’s not up or down but sideways. If the 10-year Treasury goes back down to 1.70% then munis are right where they should be.”

In tax-exempt deals, Morgan Stanley priced $204.6 million of Colorado’s Regional Transportation District sales tax refunding bonds, rated Aa2 by Moody’s, AA-plus by Standard & Poor’s, and AA by Fitch.

Yields ranged from 2.92% with a 5% coupon in 2027 to 3.50% with a 4.25% coupon in 2036.

Wells Fargo priced $158.4 million of Indiana’s Beacon Health System for the Indiana Finance Authority and the Hospital Authority of St. Joseph County. The bonds are rated AA-minus by Standard & Poor’s and Fitch.

Yields on the first pricing of $117.1 million for Indiana Finance Authority ranged from 0.30% with a 2% coupon in 2013 to 3.48% with a 5% coupon in 2034. The bonds are callable at par in 2023.

Bonds on the second pricing of $41.3 million for Joseph County Hospital yielded 3.88% with a 3.75% coupon in 2034, 3.58% with a 5% coupon in 2036, and 4.23% with a 4% coupon in 2044. The bonds are callable at par in 2023.

In the competitive market, triple-A rated Massachusetts Water Pollution Abatement Trust auctioned $206.3 million in two pricings, including $189.6 million and $16.7 million.

Bank of America Merrill Lynch won the bid for $189.6 million of state revolving fund bonds. Yields ranged from 0.17% with a 5% coupon in 2014 to 3.04% with a 5% coupon in 2043. The bonds are callable at par in 2023.

Inside 2026, spreads ranged from two basis points through the Municipal Market Data scale to eight basis points over. Outside 2027, yields were priced 15 basis points above MMD.

Morgan Stanley won the bid for $16.7 million of federally taxable bonds. Pricing details were not yet available.

In the secondary market, trades compiled by data provider Markit showed mostly strengthening.

Yields on Michigan Tobacco Settlement Financing Authority 6.875s of 2042 and Georgia Municipal Electric Authority 5s of 2024 fell four basis points each to 5.97% and 2.30%, respectively.

Yields on New York State Housing Finance Agency 3s of 2030 and Northwest, Texas, Independent School District 5s of 2019 fell two basis points each to 3.16% and 1.12%, respectively.

Yields on Massachusetts School Building Authority 5s of 2026 slid one basis point to 2.34%.

Municipal bond scales ended mostly unchanged Wednesday after posting losses Monday and Tuesday.

Yields on the Municipal Market Data triple-A GO scale finished flat. The 10-year and 30-year yields finished unchanged at 1.75% and 2.89%, respectively. The two-year finished flat at 0.29% for the 24th session.

Yields on the Municipal Market Advisors 5% scale ended mostly steady. The 10-year yield slid one basis point to 1.80%. The 30-year closed unchanged at 3.02% for the second session and the two-year finished unchanged at 0.32% for the 24th session.

Treasuries posted small gains Wednesday. The benchmark 10-year yield slid two basis points to 1.77% and the 30-year yield dropped one basis point to 2.99%. The two-year was steady at 0.24%.

As traders continue to talk about rich muni-to-Treasury ratios, the five- and 30-year ratios have fallen below their 90-day averages. The 10-year is hovering just above. The five-year ratio closed down to 101.4%, just under its 90-day average of 104%. The 30-year ratio closed below its 90-day average of 97.4% to 97%. The 10-year ratio finished at 99.4%, just above the 90-day average of 98.7%.

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