Yields on municipal bonds ended mostly flat Thursday as slight primary volume and lighter trading kept selling at bay.
New York City Housing Development Corp. priced for institutions Thursday in the last major deal in the negotiated market this week, helping to provide some direction for the market. In the secondary, odd-lot buy trades fell from last week while sell trades increased just slightly for the week.
“It might be marginally weaker but we are not seeing enough to call it changed,” a New York trader said. “I am wondering whether people have sold enough ahead of the outflows to have a decent cushion for the next few days.”
Puerto Rico remains the wild card this week, the trader said, and could push outflows to accelerate. The Standard & Poor’s Municipal Bond Puerto Rico index is down 8.88% in August and 14.91% for the year, outpacing its worst annual return since 2008 when the index fell 12.5% for the year.
“Heavy selling pressure continues to weigh negatively as the market looks for signs that the territory will get its economic house in order,” wrote J.R. Rieger, vice president of fixed income at Standard & Poor’s Dow Jones Indices.
Other traders showed concern with Puerto Rico. “Puerto Rico paper has not responded well to the Barron’s article last weekend,” wrote Dan Toboja, vice president at Ziegler Capital Markets. “Trades are occurring at levels cheap to tobacco in many instances,” he said. Yields above 8% “are not unusual. Neither are trades with close to 20-to-40 basis points difference in a matter of minutes. While most participants would agree there seems to be compelling value at these kinds of yields it’s worth remembering Puerto Rico has its own set of unique political variables that no other state or municipality has to deal with.”
Back in the general market, the New York trader said the large bid lists that surfaced earlier in the week didn’t appear Thursday, hinting that some of the selling had slowed.
Other traders worked to clear their books ahead of month-end as Friday trading was expected to be very quiet.
“It’s actually been busy today,” a New York trader said. “I’m thinking people are trying to get some month-end stuff done since I don’t think anyone will be around tomorrow.”
In the primary market, JPMorgan priced and repriced for institutions $656.2 million of New York City Housing Development Corp. capital fund grant program revenue bonds, rated AA-minus by Standard & Poor’s.
Yields on the first series of $186 million ranged from 0.25% with a 2% coupon in 2014 to 4.15% with a 4% and 5% coupon in a split 2025 maturity. The bonds are callable at par in 2023. In repricing, yields were lowered as much as seven basis points on bonds maturing in eight years. Yields had already been lowered three basis points and one basis point in preliminary pricing on bonds maturing in 2016 and 2021, respectively.
Yields on the second series of $470.2 million ranged from 0.25% with a 2% coupon in 2014 to 5.04% with a 5% coupon in 2033. The bonds are callable at par in 2023. In repricing, yields were lowered between four and seven basis points on bonds maturing between 2016 and 2020.
In the competitive market, triple-A rated Austin, Texas, auctioned $189.9 million in three pricings.
Citi won the bid for $113.3 million of public improvement bonds. Yields ranged from 0.19% with a 2% coupon in 2014 to 4.49% with a 5% coupon in 2033. The bonds are callable at par in 2023. Bonds with 5% coupons yielded eight to 30 basis points above Wednesday’s Municipal Market Data scale.
Frost Bank won the bid for $51.2 million of public property finance contractual obligations. Yields ranged from 0.23% with a 0.5% coupon and 0.30% with a 1% coupon in a split 2014 maturity to 1.55% and 1.68% with 3% coupons in a split 2018 maturity.
Robert W. Baird & Co. won the bid for $25.3 million of certificates of obligation. Yields ranged from 0.77% with a 4% coupon in 2016 to 4.67% with a 4.5% coupon in 2038. The bonds are callable at par in 2023.
In the secondary market, trades compiled by data provider Markit showed mostly weakening.
Yields on New Jersey Economic Development Authority 5s of 2026 and Pennsylvania 5s of 2028 increased two basis points each to 5.12% and 4.06%, respectively.
Yields on Dormitory Authority of the State of New York 5s of 2035 and Dallas-Fort Worth Airport 5s of 2042 rose one basis point each to 5.03% and 5.76%, respectively.
Thursday, yields on the triple-A Municipal Market Data scale ended flat to one basis point higher. The 10-year was steady at 2.94% the 30-year was unchanged at 4.45%. The two-year finished flat at 0.43% for the 32nd straight session.
Yields on the Municipal Market Advisors scale ended mostly flat across the curve. The 10-year was steady at 3.08% for the third session and the 30-year closed steady at 4.54% for the second session. The two-year closed unchanged at 0.55% for the 11th session.
Treasuries ended firmer Thursday after mostly flat trading in the morning session. The benchmark 10-year yield slid four basis points to 2.75% and the 30-year yield dropped five basis points to 3.70%. The two-year was steady at 0.40%.
For the week through Aug. 28, there were fewer buy trades and just slightly more sell trades from the previous week in odd-lot trades of under 100 bonds, according to BondDesk Group.
Buy trades fell to 94,942 with a par value of $2.412 billion, down from the previous week’s 96,733 with a par value of $2.438 billion. Buy trades were the second highest in the last five weeks. Sell trades rose to 38,468 with a $1.040 par value, from the previous week’s 38,212 trades of $1.020 billion. Sell trades were the second highest in the previous five weeks.