Market Post: Muni Yields Stabilize Following Bernanke Comments

Federal Reserve Chairman Ben Bernanke has spoken. But the municipal market, after a period of buying Wednesday morning, has stabilized as the session crossed into the afternoon.

Bernanke's comments to Congress about the status of the accommodative monetary policy currently in place prompted early buying and firming tax-exempt yields. Most of the action concentrated near the short and intermediate portions of the yield curve, a trader in Florida said.

"The market's stabilizing, despite the fact that we continue to see heavy bid-wanted flows from customers," he said. "Yesterday, we had just over a billion, and we're on pace today to be just shy of that. But nonetheless, with that and a pretty healthy calendar, the market's doing very well."

Bernanke said in his semiannual monetary policy testimony to Congress that monetary policy would remain highly accommodative for the foreseeable future due to high unemployment and low inflation. He also told the House Financial Services Committee the Fed's bond buying program would continue until labor market conditions improve dramatically.

Last month, Bernanke's comments sent bond market yields soaring.

By early afternoon, traders identified maturities out to five or seven years as the strongest portions of the curve, with some business beginning to creep out to 15 years. Quality credit spreads appear somewhat wider than they have been, compared to the 10-year sector, the trader said.

"The selling in the back end has not been really heavy at this point," he said. "And that may be more of the reason why it's stable in the back end, because the selling [there] has not been significant. However, as a whole, when you look at the market, it's stabilized and traders are starting to get their confidence back."

At the same time, the market expects a sizable increase in new issuance this week, at roughly $9.65 billion, according to Ipreo LLC and The Bond Buyer. Last week, a revised $5.38 billion arrived, according to Thomson Reuters.

In the negotiated market, Morgan Stanley priced for retail $496.9 million of Miami-Dade County, Fla., water and sewer system revenue refunding bonds in two series. The bonds are rated Aa3 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.

Yields in the first series, $347.8 million of water and sewer system revenue bonds, ranged from 4.42% with a 5.00% coupon in 2030 to 4.72% with a 5.00% coupon in 2037.

Debt maturing in 2042 was not offered to retail. The bonds are callable at par in 2022.

Yields for the second series, $149.1 million of water and sewer system revenue refunding bonds, ranged from 4.11% with a 5.00% coupon in 2027 to 4.45% with a 4.375% coupon in 2029. The bonds are callable at par in 2023.

Half of credits maturing in 2027 through 2029 will be offered during the retail order period.

Citi priced $179.4 million of Hamilton County, Ohio, sewer system improvement and refunding revenue bonds for the Metropolitan Sewer District of Greater Cincinnati. The bonds are rated Aa2 by Moody's and AA-plus by Standard & Poor's.

Yields range from 1.34% with a 5.00% coupon in 2017 to 4.40% with a 5.00% coupon in 2038. The bonds are callable at par in 2023.

Tax-exempt yields continue to fall moderately in the belly of the curve, according to one market gauge. Yields were steady beyond 16 years. Those between two and 16 years were flat to three basis points lower, with the greatest strength between three and five years, as well as nine and 13 years.

The 10-year triple-A tax-exempt fell two basis points by Tuesday's close to 2.64%, according to the Municipal Market Data scale read. The 30-year yield held at 4.00%, while the two-year steadied at 0.45% for the fourth session.

Yields on the Municipal Market Advisors 5% scale ended mostly firmer on Tuesday, falling between one and five basis points at various parts of the curve. The 10-year yield fell two basis points to 2.82%. The 30-year yield held steady at 4.11%. The two-year remained at 0.54% for the fourth straight session.

Treasury yields, which fell early in the day, have stabilized slightly lower across the curve. The benchmark 10-year yield has dipped four basis points to 2.49%. The two-year yield has slipped three basis points to 0.30, while the 30-year yield has inched down one basis point to 3.57%.

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