The tax-exempt market ended much weaker Tuesday as traders said sentiment about market strength has quickly changed.

Fed up with near-record low yields and too much inventory on their books, traders said weakening began Monday and continued into Tuesday. Primary deals were cheapened and yields in the secondary jumped.

“The market is looking at a five basis point cut right now,” said Dan Toboja, vice president at Ziegler Capital Markets. “This market just got weaker. I think everyone woke up and said I’m too heavy. Time to sell. There are some decent size blocks coming for sale.”

He added in Monday’s trading session the market gave signs of weakness for the first time in several weeks, and that continued well into Tuesday. “Bids were off and new issue balances from last week remained on several deals. The large supply of general market paper this week will be a test for the market.”

Still, one trader said he is seeing pockets of strength in the market. “We’ve had a few cheap new issues recently,” a retail-focused New Jersey trader said. “Small deals around $1 to $2 million are selling extremely fast.”

This trader added he is looking at A-minus rated housing bonds with a 4.25% coupon maturing in 2034. “It came to market at 97 or 98 and I’m trading them to retail at par. Entire issue priced with no leftovers. And most of these small deals we are seeing are deals that the big shops never got in on.”

To be sure, this trader said he is selling Puerto Rico and Detroit bonds given the recent credit problems. “I’m shedding stuff like that with small coupons and bad credits. I’ve been sticking up for Detroit for too long. Caa1 is where I draw the line,” he said. “It’s time to come out of Detroit to avoid the looming volatility.”

“I think Puerto Rico has a problem on its hands too,” this trader said. “They will be fine and continue to pay, but a downgrade could be very bad from investment grade to junk. It’s not going to be good if you find that managers have to dump Puerto Rico because it violates certain investment parameters. The market will get flooded with Puerto Rico paper and anyone holding it is going to get whacked liquidity wise.”

In the primary market Tuesday, Citi priced $1.2 billion of Iowa Finance Authority Midwestern disaster area revenue bonds for the Iowa Fertilizer Company project, rated P-1 by Moody’s Investors Service and A-1-plus by Standard & Poor’s.

The bonds were priced at par with a 0.18% coupon maturing in 2050 with an April 2013 put.

Citi also priced for institutions $1 billion of New York City general obligation bonds, following a two-day retail order period. The bonds are rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch Ratings.

Yields on the first series of $519.6 million ranged from 0.61% with 4% and 5% coupons in a split 2015 maturity to 2.36% with a 5% coupon in 2028. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.

Yields on the second series of $480.6 million ranged from 0.61% with 3% and 5% coupons in a split 2015 maturity to 3% coupon priced at par in 2033. Bonds maturing in 2013 and 2014 were offered via sealed bid. The bonds are callable at par in 2023.

Bank of America Merrill Lynch priced $293.4 million of Route 460 Funding Corporation of Virginia toll road senior lien revenue bonds, rated Baa3 by Moody’s and BBB-minus by Standard & Poor’s.

Bonds in the first series, $231.6 million of current interest bonds, yielded 4.00% with a 5.125% coupon in 2049 and 4.10% with a 5% coupon in 2052. The bonds are callable at par in 2023.

Bonds in the second series, $61.8 million of capital appreciation bonds, had a yield to maturity ranging from 3.96% in 2024 to 5.24% in 2045.

In the competitive market, JPMorgan won the bid for $560 million of Virginia Housing Development Authority revenue bonds. The bonds yielded 0.14% with a 0.14% coupon in 2038.

JPMorgan also won the bid for $292.7 million of triple-A-rated Georgia general obligation bonds. Yields ranged from 0.97% with a 5% coupon in 2019 to 1.85% with a 4% coupon in 2024.

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

Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 6.5s of 2047 and California 4s of 2027 jumped four basis points each to 6.61% and 2.67%, respectively.

Yields on California State Public Works Board 4s of 2037 and New York’s Triborough Bridge and Tunnel Authority 5s of 2029 rose three basis points each to 3.66% and 2.21%, respectively.

Yields on New York 4s of 2030 and Illinois’ Metropolitan Pier and Exposition Authority 5.25s of 2050 also spiked up three basis points each to 2.64% and 3.28%, respectively.

On Tuesday, the Municipal Market Data scale ended as much as eight basis points weaker. The 10-year yield jumped eight basis points to 1.58% and now hovers 11 basis points above its record low of 1.47% set Nov. 28.

The 30-year MMD yield spiked up five basis points to 2.55%, trading eight basis points above its record low of 2.47% set Nov. 28.

The two-year finished flat at 0.30% for the 52nd consecutive trading session.

Muni yields followed Treasury yields higher. The benchmark 10-year Treasury yield jumped three basis points to 1.65% while the 30-year yield increased two basis points to 2.83%. The two-year Treasury was steady at 0.25%.

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