Market Close: With Attractive Yields, Buyers Flood Market With Cash

With more buying conviction than it has seen in months, the municipal bond market posted strong gains as yields on triple-A benchmark scales fell as much as eight basis points.

After lackluster demand stemming from 15 consecutive weeks of outflows from municipal bond mutual funds totalling $24.6 billion, and uncertainty surrounding the future of the Federal Reserve’s $85 billion-a-month bond purchasing program, traders said yields were finally high enough to entice buyers back into the market.

“The market is very strong actually,” a Chicago trader said. “There were some trades at really tight levels this morning. Large funds maybe feel less pressure on flows.”

One Los Angeles trader said the market felt three to five basis points stronger with much more conviction than the small gains posted earlier in the week.

“It’s feeling strong right now,” the trader said. “Everything is up. There is a lot less supply out there and a not a lot of bonds are coming to market. Treasuries are up again and outflows might have finally subsided.”

He said prices are cheap enough that buyers are comfortable participating in the market again. “We have had such major outflows for the past several weeks that it seems like yields are attractive enough to bring people in.”

One issuer that took advantage of demand Thursday was Battle Creek, Mich., which came to market with $15.4 million of insured, limited-tax general obligation bonds, after postponing the deal in August following Detroit’s bankruptcy filing.

Hutchinson Shockey Erley & Co. priced the GOs for institutions Thursday and lowered yields as much as 17 basis points from retail pricing Wednesday. Yields ranged from 0.65% with a 2% coupon in 2014 to 5.23% with a 5% coupon in 2033. The bonds are callable at par in 2018. The deal was insured by Build America Mutual with a AA rating by Standard & Poor’s. The underlying ratings are Aa3 by Moody’s Investors Service and AA by Fitch Ratings.

Elsewhere in the primary, JPMorgan priced $278 million of Texas Private Activity Bond Surface Transportation Corp. senior lien revenue bonds, subject to the alternative minimum tax. The bonds are rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s.

The bonds yielded 6.75% with a 7% coupon in 2038 and 6.875% with a 6.75% coupon in 2043. The bonds are callable at par in 2023.

Goldman, Sachs & Co. priced and repriced $188.4 million of Turnpike Authority of Kentucky economic development road revenue bonds, rated Aa2 by Moody’s, AA-plus by Standard & Poor’s, and A-plus by Fitch Ratings.

Yields ranged from 0.43% with a 2% and 5% coupon in a split 2015 maturity to 4.70% with a 4.625% coupon and 4.66% with a 5% coupon in a split 2033 maturity. The bonds are callable at par in 2023. Yields were lowered between one and four basis points on bonds maturing between 2024 and 2033 from preliminary pricing.

In the competitive market, Richmond, Va., auctioned $139 million of general obligation bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Barclays won the bid for the first pricing of $127.7 million of public improvement bonds. Yields ranged from 0.16% with a 2% coupon in 2014 to 4.25% with a 5% coupon in 2033. The bonds are callable at par in 2023. Bonds with 5% coupons maturing between 2020 and 2033 were priced 22 to 28 basis points richer than Wednesday’s double-A Municipal Market Data scale.

Raymond James & Associates won the bid for $11.3 million of taxable public improvement bonds. Yields ranged from 1.16% with a 3% coupon in 2016 to 4.85% with a 4.8% coupon in 2033.

In the secondary market, trades compiled by data provider Markit showed strengthening. Yields on Texas Municipal Gas Acquisition & Supply Corp. 6.25s of 2026 fell seven basis points to 5.16%.

Yields on California’s Golden State Tobacco Securitization Corp. 4.5s of 2027 and South Dakota Health and Educational Facilities Authority 5s of 2042 slipped five basis points each to 6.27% and 5.53%, respectively.

Yields on Connecticut Health and Educational Facilities Authority 5s of 2042 and California 5s of 2022 fell four basis points each to 3.95% and 3.21%, respectively.

Yields on New Jersey State Turnpike 5s of 2038 and New York’s Metropolitan Transportation Authority 5s of 2031 fell two basis points each to 5.00$ and 4.90%, respectively.

On Thursday, yields on the triple-A Municipal Market Data scale ended as much as eight basis points firmer. The 10-year yield slipped eight basis points to 2.87% and the 30-year yield dropped five basis points to 4.41%. The two-year was steady at 0.43% for the 41st straight session.

Yields on the Municipal Market Advisors scale ended as much as seven basis points lower. The 10-year yield dropped six basis points to 3.04% and the 30-year yield dropped five basis points to 4.52%. The two-year closed unchanged at 0.55% for the 20th session.

Treasuries posted gains Thursday for the second consecutive session though most of the morning gains were pared by the afternoon. The 10-year and 30-year yields fell one basis point each to 2.91% and 3.85%, respectively. The two-year yield slid one basis point to 0.44%.

Retail trading activity was up significantly for the week through Sept. 11, according to BondDesk Group, which tracks trades of under 100 bonds. Buy trades jumped to 90,542 from the past week’s 68,954. Sell trades rose to 37,111 from the previous week’s 25,623.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER