NEW YORK – Throughout the week, most traders have been mixed on the market. Most deals have been received and many were bumped up in size. But others deals have cut prices to get them out the door.
“This week’s moderate new issue slate is meeting strong demand with many issues oversubscribed, but secondary bids were reportedly weaker,” wrote Alan Schankel, managing director at Janney Capital Markets.
After new issues were priced Thursday, the market settled down. “You have to remember that it’s a big school week off. So there are a lot of people away,” a New York trader said.
Traders shifted focus to the secondary in the afternoon. “People are still busy trading Puerto Rico bonds,” he added. “It was a large deal and a lot of flippers came back. They buy new deals and sell them to the street higher just for a quick profit. It happens when issuers price them too cheap, flippers put in for bonds and sell them as the deal frees up.”
In similar bond news, the iShares S&P National AMT-Free Municipal Bond Fund – ticker MUB – fell 2.13%, or 2.43 points, on Thursday, to a one-month low.
One reason, a New York trader said, is the top holdings in the ETF are California bonds – and sellers could be getting out of the ETF ahead of the almost $2.8 billion California deals expected to hit the market next week. Some of the top holdings include California State, California Department Water Resources, and California Statewide Communities Development Authority.
“MUB is a general ETF, so people could be shorting it as a hedge,” he said. “People could be going short munis or shorting versus a long position. There are also a lot of budget issues going on in California. California has had a huge run and they might be shorting on that ahead of the deal next week.”
Munis were stead Thursday, according to the Municipal Market Data scale. The two-year yield ended steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 10-year and 30-year yields finished flat at 1.88% and 3.27%, respectively.
Treasuries were stronger. The benchmark 10-year and the 30-year yields fell four basis points each to 1.99% and 3.13%, respectively. The two-year was steady at 0.31%.
In the negotiated market, Morgan Stanley priced for institutions $949 million of New York City general obligation bonds, following two retail order periods. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $167.2 million, ranged from 0.44% with a 5% coupon in 2014 to 2.61% with a 5% coupon in 2024. Bonds maturing in 2012 and 2013 were offered via sealed bid. The bonds are callable at par in 2022.
Yields on the second series, $781.8 million, ranged from 0.44% with 2% and 4% coupons in a split 2014 maturity to 3.27% with 3.125% and 5% coupons in a split 2032 maturity. Bonds maturing in 2013 were offered via sealed bid. The debt is callable at par in 2022.
“Buyers should be intrigued by the concessions offered on this loan,” said MMD’s Randy Smolik, referring to the NYC deal. “No doubt this loan will draw attention from the secondary.”
The deal “was stealing the show, priced at attractive spreads for institutions,” he added. “During the two-day retail order period about $200 million in orders surfaced. The deal has been increased and the preliminary offerings were cut three to seven basis points from yesterday's retail levels.”
JPMorgan priced $615 million of Port of Seattle intermediate lien revenue refunding bonds in three series, rated Aa3 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Yields on the first series, $345.3 million of bonds not subject to the alternative minimum tax, ranged from 0.89% with 3% and 5% coupons in 2015 to 3.61% with a 5% coupon in 2033.
Yields on the second series, $189.3 million of bonds subject to the alternative minimum tax, ranged from 0.68% with a 4% coupon in 2013 to 3.36% with a 5% coupon in 2024. Bonds maturing in 2012 were not reoffered.
The third series, $80.4 million of taxable bonds, were priced late Wednesday. The bonds were priced at par with coupons ranging from 0.883% in 2013 to 2.062% in 2017. Bonds maturing in 2012 were offered via sealed bid with a 0.40% coupon. The bonds were priced 60 to 120 basis points above the comparable Treasuries.
Citi won the bid for $331 million of city and county of San Francisco general obligation bonds, rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch. Pricing details were not available.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming over the past several days.
Bonds from an interdealer trade of Bryan, Texas, Independent School District 4.5s of 2031 yielded 2.93%, 12 basis points lower than where they traded Wednesday.
Bonds from an interdealer trade of Louisiana’s St. John Baptist Parish 5.125s of 2037 yielded 4.53%, seven basis points lower than where they traded Wednesday.
Bonds from an interdealer trade on Dallas Fort Worth International Airport 5s of 2035 yielded 3.82%, two basis points lower than where they traded Wednesday.
Bonds from an interdealer trade of Georgia’s Valdosta and Lowndes County Hospital Authority 5s of 2041 yielded 3.12%, one basis point lower than where they traded Wednesday.
With four consecutive days of flat to weaker munis, muni-to-Treasury ratios have risen as munis underperformed Treasuries and became cheaper. Since munis started weakening last Friday, the five-year ratio has risen to 79.1% on Wednesday from 75.6%. The 10-year ratio jumped to 93.5% from 91.5%. The 30-year muni-to-Treasury ratio increased to 103.8% from 102.5%.
The 10- to 30-year slope of the curve fell slightly to 139 basis points on Wednesday from 140 basis points last Friday.
Spreads have also tightened across the credit spectrum. The spreads on the two-year triple-A to single-A muni tightened to 44 basis points on Wednesday from 56 basis points at the beginning of the year as investors reached further out on the curve for yield. The spread on the 10-year triple-A to single-A muni fell to 89 basis points from 96 basis points. Similarly, the 30-year triple-A to single-A spread compressed to 83 basis points from 89 basis points at the beginning of the year.