With a primary supply calendar building, tax-exempt buyers waited on the sidelines for a more attractive opportunity to enter the market, even as bids surfaced in the secondary and the market weakened for another session.
Muni yields opened higher Tuesday morning and stayed that way throughout the trading session after a softer Treasury market set the tone.
“There are a lot of people sitting on the sidelines waiting for the calendar to continue to build,” a New York trader said. “There is a pretty decent size calendar this week and it’s only going to get larger.”
Munis followed treasuries lower for a third day. “It’s pretty brutal for the month of June,” the trader said. “I just walked in this morning and Treasuries were down nicely and that continued to set tone for munis. People are just waiting for guidance and for things to settle in before they jump back in.”
He added there was a “decent amount” of bid-wanteds from all types of investors. Dealers are providing swap trades more than liquidity.
Other traders noted the large amount of bids that surfaced. “It feels weak out there,” a Chicago trader said. “We’ve had several days of controlled selling and today it seems like people are waking up and deciding the 30-year muni being 2%-something is not coming back too soon. There are a lot of bonds out for the bid. Thankfully Treasuries are stabilizing a little but the market opened pretty scary.”
The weaker market came as several large new deals were being priced. Loop Capital Markets held a second retail pricing of $800 million New York City Transitional Finance Authority future tax secured subordinate bonds. The TFA bonds are rated Aa1 by Moody’s Investors Service and triple-A by Standard & Poor’s and Fitch Ratings. In the first retail pricing Monday, $167 million orders were placed.
In the second retail pricing Tuesday, yields ranged from 0.63% with 3% and 4% coupons in a split 2016 maturity to 4.15% with a 4% coupon in 2043. Credits maturing in 2015 were offered in a sealed bid. Bonds maturing in 2030, 2031, 2032, 2038, and 2042 were not offered for retail. The bonds are callable at par in 2023.
Yields were raised as much as 10 basis points from the first retail pricing.
Barclays priced $600 million of Build Illinois Bonds. The sales tax revenue bonds are rated AAA by Standard & Poor’s and AA-plus by Fitch.
Yields ranged from 0.50% with a 4% coupon in 2015 to 3.43% with a 5% coupon in 2026. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.
Bank of America Merrill Lynch priced for retail $500 million of Massachusetts School Building Authority senior dedicated sales tax bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch. Institutional pricing is expected Wednesday.
Yields ranged from 0.68% with a 4% coupon in 2016 to 4.10% with a 4% coupon in 2038. Bonds maturing in 2031, 2032, 2033, 2038, and 2043 were not offered for retail. The bonds are callable at par in 2023.
In the competitive market, Alabama Public School and College Authority auctioned $175 million of revenue bonds in two pricings, rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
B of A Merrill won the first bid of $119.1 million of capital improvement pool bonds. Yields ranged from 0.44% with a 5% coupon in 2014 to 4.18% with a 4% coupon in 2033. The bonds are callable at par in 2023.
B of A Merrill won the second bid of $55.92 million. Yields ranged from 0.44% with a 4% coupon in 2014 to 4.18% with a 4% coupon in 2033. The bonds are callable at par in 2023.
In the secondary market, trades compiled by data provider Markit showed weakening.
Yields on Atlanta, Ga., water and wastewater 5.5s of 2018 jumped nine basis points to 1.63% and Harris County, Texas, Metropolitan Transit Authority 5s of 2019 rose seven basis points to 1.94%.
Yields on Philadelphia 6s of 2036 increased six basis points to 3.97% and California’s Golden State Tobacco Securitization Corp. 5.125s of 2047 rose five basis points to 6.35%.
Yields on New Jersey Economic Development Authority 5s of 2029 increased four basis points to 3.82% and New York’s Metropolitan Transportation Authority 5s of 2043 rose one basis point to 4.37%.
Tuesday, yields on the Municipal Market Data scale ended as much as eight basis points higher. The triple-A 10-year yield rose seven basis points to 2.26% and the 30-year yield jumped eight basis points to 3.49%. The two-year was unchanged at 0.30% for the seventh session.
Muni yields on the Municipal Market Advisors 5% scale closed out as much as eight basis points higher. The 10-year yield climbed five basis points to 2.30% and the 30-year yield jumped six basis points to 3.57%. The two-year ticked up one basis point to 0.38%.
The Treasury market was choppy as yields rose in the morning and fell in the afternoon. By the end of the trading session Tuesday, the benchmark 10-year yield fell two basis points to 2.19% and the 30-year yield slid four basis points to 3.33%. The two-year was steady at 0.33%.
With the recent rise in yields, buyers still have time to wait before reentering the market. “We have yet to see a day of true market panic, but the steady increase in yields has been dramatic over the last couple weeks,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “The long triple-A muni has moved 60 basis points or so since the beginning of May and almost 100 basis points from the top of the market. If outflows continue and supply picks up there could be some more selloffs before buyers emerge.”