NEW YORK – The tax-exempt market is slightly lower Wednesday, but a turnaround could be on the horizon.
“We are definitely seeing interest in the market, but there just isn’t a lot to do here,” a New York trader said. “So we are drifting a little lower on apathy.”
He added the markets could get stronger Thursday. “Other than last week, the strongest days of the week have been Wednesday going into Thursday, so I wouldn’t be surprised if the market is better going into tomorrow.”
Munis were weaker Wednesday early afternoon, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years rose one to two basis points across the curve.
On Tuesday, the 10-year yield jumped five basis points to 1.84%. The 30-year yield was steady at 3.22%. The two-year was the anomaly, as the yield fell one basis point to 0.29%, setting a record low as recorded by MMD. The previous record of 0.30% was set Aug. 10.
After gaining Wednesday morning, Treasuries pared those gains in the afternoon to Tuesday’s levels. The two-year yield was steady at 0.26% while the benchmark 10-year yield was flat at 1.98%. The 30-year yield held at 3.15%.
In the primary market Wednesday, the competitive calendar was full of activity. And with almost $18 billion of bonds maturing in February, the market should be able to absorb supply this week.
Wells Fargo won the bid for $286.4 million of Florida Board of Education public education capital outlay refunding bonds, rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings. Pricing details were not available.
JPMorgan won the bid for $131.9 million of Tarrant Regional Water District water transmission facilities contract revenue bonds. This deal comes after the district issued $160 million in the negotiated market Monday. The bonds are rated Aa1 by Moody’s.
Maturities ranged from 2013 to 2042. Prices were not available by press time.
In the negotiated market, Barclays Capital priced and repriced $271.3 million of University of Washington taxable and tax-exempt general revenue and refunding bonds, rated Aaa by Moody’s and AA-plus by Standard & Poor’s.
Yields on the first series, $237.1 million of general revenue and refunding bonds, ranged from 0.22% with a 2% coupon in 2013 to 3.50% with a 5% coupon in 2041. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2022.
Credits on the second series, $34.2 million of taxable general revenue and refunding bonds, were priced at 82 basis points above the comparable Treasury yield in 2020 and 65 basis points above the comparable Treasury yield in 2021. The spread on credits maturing in 2020 was cut to 82 basis points from 87 basis points at the repricing. Bonds maturing in 2012 were offered via sealed bid.
Morgan Stanley priced $240.6 million of Cleveland, Ohio, airport system revenue bonds. The credit is rated Baa1 by Moody’s and A-minus by Standard & Poor’s and Fitch. Credits that are insured by Assured Guaranty are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Yields on credits that were insured ranged from 3.64% with a 5% coupon in 2025 to 4.15% with a 5% coupon in 2031. Yields on credits without insurance ranged from 3.79% with a 5% coupon in 2025 to 4.30% with a 5% coupon in 2031. The bonds are callable at par in 2022.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board were mixed, although most trades showed weakness.
A dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2044 at 3.83%, five basis points higher than where they traded Tuesday.
Another dealer sold to a customer Long Island Power Authority 5s of 2038 at 4.09%, four basis points higher than where they traded Tuesday.
A dealer sold to a customer Massachusetts 5.25s of 2030 at 2.30%, two basis points higher than where they traded Monday.
A dealer bought from a customer Tarrant Regional Water District 5s of 2052 at 3.77%, one basis point higher than where they traded Tuesday.
Over the past week, muni-to-Treasury ratios have fallen as munis outperformed and became more expensive. The five-year ratio fell to 87.5% on Tuesday from 100% the week prior. The 30-year ratio fell to 102.5% from 106.8% the week before.
The 10-year spot has reversed, with the ratio increasing to 93.9% on Tuesday from 93.3% the week prior.
The slope of the yield curve continues to flatten. The 10- to 30-year slope fell to 138 basis points from 146 basis points the week before.
