NEW YORK – With still a lot of cash on the sidelines, tax-exempt investors are buying up bonds in the primary market. Traders noted the uptick in supply this week has not scared away investors and many deals are still oversubscribed.
“There was an interesting article on corporate issuance about supply being gobbled up by too much cash,” a Chicago trader said. “It seemed pretty true to what I think is going on in munis as well. The thing is muni buyers are a little more fickle - hence the up two basis points and down two basis points movements for the last two months.”
There is a “wait and see attitude when supply shows up and it gets placed and then everyone goes back to sleep for a while,” he added.
Munis were steady to weaker early Wednesday afternoon, according to the Municipal Market Data scale. Yields inside six years were steady while the seven- to 13-year yields rose up to one basis point. The 14- to 24-year yields were steady while yields outside 25 years rose up to one basis point.
On Tuesday, the two-year yield ended steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 10-year and the 30-year yields fell one basis point each to 1.84% and 3.22%, respectively.
Treasuries were steady from morning levels after strengthening over night on positive economic news. The benchmark 10-year yield rose four basis points to 1.99%. The two-year yield rose one basis point to 0.31% while the 30-year yield increased three basis points to 3.10%.
In the primary market, JPMorgan held its second day of retail on $2 billion of California various purpose general obligation refunding bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings. Pricing information was not yet available.
In the first retail order period, yields ranged from 0.66% with 2%, 3%, and 5% coupons in a split 2014 maturity to 4.375% priced at par and 4.09% with a 5% coupon in a split 2038 maturity. Credits maturing between 2025 and 2026, between 2028 and 2031, and in 2033 were not offered for retail. The bonds are callable at par in 2022.
Wells Fargo priced $170.3 million of County of Guilford, N.C., general obligation public improvement refunding bonds, rated triple-A by all three rating agencies. Pricing details were not available.
In the competitive market, Alabama Public School and College Authority auctioned $162.1 million of refunding bonds in two pricing – $80.3 million and $81.8 million. The bonds are rated Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch.
Goldman, Sachs & Co. won the bid for $80.3 million. Pricing information was not yet available.
Bank of America Merrill Lynch won the bid for $81.8 million. Yields ranged from 1.51% with a 5% coupon in 2019 to 3.05% with a 3% coupon in 2029. Bonds maturing between 2015 and 2018 were sold but not available. The debt is callable at par in 2022.
JPMorgan won the bid for $153.8 million of Oyster Bay, N.Y., bond anticipation notes, rated SP-1-plus. The bonds yielded 0.55% with a 2.5% coupon.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming this week.
A dealer sold to a customer Washington 5s of 2035 at 3.25%, nine basis points lower than where they traded Tuesday.
Bonds from an interdealer trade of West Contra Costa, Calif., Unified School District 6.25s of 2030 yielded 5.67%, eight basis points lower than where they traded Tuesday.
Bonds from another interdealer trade of New York Liberty Development Corp. 5s of 2041 yielded 3.79%, four basis points lower than where they traded Tuesday.
In the month of February, ratios have fallen as munis outperformed Treasuries and became more expensive. The five-year ratio ended at 81.9% on Tuesday, down from 100% at the beginning of the month. The 30-year ratio ended at 105.2%, down from 106.8% at the beginning of February. The 10-year muni-to-Treasury ratio was the anomaly, rising slightly to 95.3% from 93.3%.
Over the month of February, the slope of the yield curve has fallen. The 10- to 30-year slope fell to 138 basis points from 146 basis points at the beginning of the month.
Throughout February, investors have also moved out on the credit scale in the 10-year range but pulled back from lower-rated credits on the long end. The 10-year triple-A muni to single-A muni spreads fell to 89 basis points on Monday from 91 basis points at the beginning of the month. Spreads fell down to 88 basis points mid-month before rising back up.
The 30-year triple-A to single-A spreads rose to 82 basis points from 79 basis, showing buyers are less willing to take credit risk longer out on the yield curve.
The two-year and five-year triple-A to single-A credit spreads were steady at 44 basis points and 72 basis points, respectively.
