NEW YORK – Munis aren’t jaded by weakening Treasuries as the tax-exempt market continues to firm. Several traders noted prices on bonds in the new issue market were bumped.
“Many of the same themes that drove the market this week continue Thursday,” said a trader in New York. “Munis remain well bid as dealers continue to reach for product, particularly in the long end of the curve. This is in spite of a slightly weaker Treasury market.”
He added, “Customer bid-wanted lists appear to be garnering strong levels, particularly for high grade names and early indications on some of the negotiated supply of the day point to oversubscription and upward price adjustments.”
Muni yields had not been updated by press time. But according to the Municipal Market Data scale Thursday morning, the two-year and three-year yields fell two basis points. The four-year to six-year yields were steady and the seven-year yield fell two basis points. Outside the eight-year, yields fell between one and five basis points.
On Wednesday, the two-year closed down two basis points at 0.38%. The 10-year fell three basis points to close at 1.79%, beating the previous record of 1.82% as recorded by MMD Tuesday. The 30-year dropped seven basis points to 3.33%, beating the previous record of 3.40% as recorded by MMD on Tuesday.
Treasuries were weakening Thursday. The benchmark 10-year yield rose three basis points to 1.94% and the 30-year yield rose two basis points to 2.99%. The two-year yield was steady at 0.24%.
In the primary market, Bank of America Merrill Lynch priced for institutions $178.4 million of Florida’s JEA electric system revenue bonds in two series. The deal was priced for retail investors Wednesday and prices were bumped five to 10 basis points Thursday inside the 10-year.
Yields on the first series, $63.7 million of electric system revenue bonds, ranged from 2.59% with a 4% coupon in 2023 to 3.74% with a 4.5% coupon on 2033. The bonds are callable at par in 2021. The credit is rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields on the second series, $114.7 million of electric system subordinated revenue bonds, ranged from 0.35% with a 2% coupon in 2012 to 4.04% with a 4% coupon in 2033. The bonds are callable at par in 2021. The credit is rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus b y Fitch.
On the competitive calendar, the Township of Livingston, N.J., auctioned about $60 million of general obligation bonds in two pricings, comprised of a $6.38 million deal followed by a $53.67 million deal. The credit is rated Aa2 by Moody’s.
Bank of America Merrill Lynch won the larger deal. Yields ranged from 0.47% with a 3% coupon in 2014 to 3.07% with a 3% coupon in 2029. Credits maturing in 2013, 2022, 2023, and from 2030 to 2042 were sold but not available. The bonds are callable at par in 2022.
In the secondary market, trades of tobacco bonds reported by the Municipal Securities Rulemaking Board showed hefty gains.
Bonds from an interdealer trade of Alaska’s North Tobacco Securitization Corp. 5s of 2046 yielded 7.05%, 27 basis points lower than where they traded a week before.
A dealer sold to a customer Iowa Tobacco Settlement Authority 6.5s of 2023 at 7.22%, 13 basis points lower than where they traded last week.
A dealer bought from a customer California’s Golden State Tobacco Securitization Corp. 5s of 2045 at 5.11%, 11 basis points lower than where they traded earlier this week.
The 10-year and 30-year muni have been outperforming Treasuries so far in 2012 as ratios have fallen. The 10-year muni-to-Treasury ratio fell to 91.9% on Tuesday from 96.4% the week prior. The 30-year ratio fell to 112.2% on Tuesday from 119.4% the previous Tuesday.
The five-year muni bond is underperforming the Treasury. The five-year muni-to-Treasury ratio rose to 100% on Tuesday from 98.9% the prior Tuesday.
