NEW YORK – Munis continued to improve, following Treasuries, as traders said the tax-exempt market was very busy Wednesday afternoon.
“The market is doing well and [is] very firm,” said a trader in Chicago. “It’s up a couple ticks and on the longer end up even more than that.”
He added the new issue market is “improving current levels.” There are also a lot of other factors that are contributing to the improving muni market, including overseas markets and strengthening Treasuries, the trader said.
Munis were firming further in early Wednesday afternoon trading, according to the Municipal Market Data scale. The two-year yield fell between one and three basis points while the three-year to six-year yields fell one basis point. The seven-year yield dropped two basis points. Between the eight-year and the 10-year, yields fell between one and three basis points. Outside the 11-year maturity, yields plunged, falling anywhere from two to seven basis points.
On Tuesday, the two-year yield held steady at 0.40%. The 10-year yield closed down one basis point to 1.82%, beating the previous record of 1.83% as recorded by MMD on Dec. 30. The 30-year dropped five basis points to 3.40%, beating the previous record of 3.44% as recorded by MMD on Sept. 23.
Treasuries continue their rally from Wednesday morning, falling up to seven basis points on the long end. The two-year yield fell one basis point to 0.24% while the benchmark 10-year and 30-year yields fell seven basis points each to 1.91% and 2.96%, respectively.
In the primary market, the two biggest deals on the negotiated calendar priced.
Morgan Stanley priced $240 million of Orange County, Calif., taxable pension obligation bonds, rated Aa2 by Moody’s Investors Service and A-plus by Standard & Poor’s.
Bank of America Merrill Lynch priced $181 million of North Carolina grant anticipation revenue vehicle bonds. The credit is rated Aa2 by Moody’s, AA by Standard & Poor’s and AA-minus by Fitch Ratings.
Pricing information was not yet available for the deals.
On the competitive calendar, Illinois auctioned $800 million of general obligation bonds in two pricings.
Wells Fargo won the bid for the $525 million tax-exempt deal and JPMorgan won the bid for $275 million in taxable bonds. Details were not available by press time.
The Illinois deals come after Moody’s downgraded $27 billion of Illinois GOs to A2 from A1 and gave it a stable outlook. Illinois is now the lowest rated state by Moody’s. Standard & Poor’s kept the state’s A-plus rating and negative outlook while Fitch kept its A rating and stable outlook.
Earlier this week, John Sinsheimer, director of capital markets for Illinois said “In the last 12 months, we have paid off a significant amount of Illinois debt so we believe there’s appetite out there for the name.”
Also early in the week, Judy Baar Topinka, state comptroller for Illinois, added “I want to make clear that there is no fear of the state missing a bond payment.”
In the secondary market, trades reported by the Municipal Securities Rulemaking Board – particularly those with 5% coupons – showed double-digit gains this week.
A dealer bought from a customer New York State Urban Development Corp. 5s of 2031 at 3.15%, 22 basis points lower than where they traded last Friday. Another dealer bought from a customer California Health Facilities Financing Authority 5.25s of 2031 at 3.84%, 19 basis points lower than where they traded last Friday.
Bonds from an interdealer trade of New York Liberty Development Corp. 5s of 2044 yielded 4.37%, 20 basis points lower than where they traded last Friday. Bonds from another interdealer trade of Detroit Water Supply System 5.25s of 2041 yielded 4.90%, 16 basis points lower than where they traded last Friday.
