NEW YORK – The tax-exempt market seems unstoppable with munis continuing to strengthen since the new year began.
“We are firmer again,” said a trader in New Jersey. “You just can’t keep product on the shelf very long. And demand is climbing the market higher.”
He added there are not a lot of new bonds in the market right now, and the 30-day visible supply isn’t very high, so lack of supply is pushing demand higher.
Indeed, munis were strengthening in early afternoon trading, according to the Municipal Market Data scale. Yields on the two-year to five-year fell one basis point while yields on the six-year to seven-year were steady. Yields on the eight-year and nine-year fell one basis point while the 10-year yield dropped two basis points. The 11-year to 12-year yields fell between one and three basis points, and yields on the 13-year credit dropped between two and four basis points. The 14-year to 22-year strengthened the most, with yields plunging between four and six basis points. Outside the 23-year maturity, munis had a big rally, with yields dropping between three and five basis points.
On Friday, the two-year yield closed flat at 0.42% for its fourth consecutive trading session. The 10-year yield closed down two basis points to 1.85% and the 30-year fell four basis points to 3.50%.
Treasuries were flat Monday morning but firmer in the afternoon. The two-year yield fell one basis point to 0.26%. The benchmark 10-year yield and the 30-year yield each fell four basis points to 1.93% and 2.98%, respectively.
In the primary market Monday, PNC Capital Markets priced $171.4 million of Ohio bonds, rated Aa1 by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings.
The deal includes $80 million of third frontier resource and development general obligation bonds, $12 million of coal development revenue bonds, and $79.4 million of common schools GOs. Pricing information was not available by press time.
In the competitive market Monday, Bank of America Merrill Lynch won the bid for $92.8 million of Plano, Texas, Independent School District GOs. The credit is rated Aaa by Moody’s and AAA by Standard & Poor’s.
Yields ranged from 0.18% with a 4% coupon in 2013 to 2.41% with a 4% coupon in 2023. Credits maturing from 2014 to 2017, 2021, 2022, and 2024 to 2037 were sold but not available. The bonds are callable at par in 2021.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer sold to a customer Southwest Higher Education Authority, Texas, 5s of 2041 at 3.57%, 33 basis points lower than where they traded Friday.
Another dealer sold to a customer California 7.625s of 2040 at 5.59%, 15 basis points lower than where they traded Friday.
Bonds from an interdealer trade of California Public Works Board 5s of 2028 yielded 4.27%, eight basis points lower than where they traded Friday.
Bonds from an interdealer trade of Puerto Rico Sales Tax Financing Corp. 5.5s of 2037 yielded 4.36%, seven basis points lower than where they traded Friday.
Munis underperformed Treasuries as the 10-year and 30-year muni-to-Treasury ratio closed slightly higher at 94.4% and 116.3%, respectively. “We continue to feel that this week’s calendar is manageable and the muni market should easily break through the 93.7% level reached for the 10-yaer muni-Treasury ratio in early August 2011 – well before new issue volume picked up rapidly,” wrote MMD’s Daniel Berger. On Friday, the five-year ratio closed at 101.2%.
