NEW YORK – After three sessions of rallying, the tax-exempt market took a breather Wednesday morning.

“It’s a little weaker,” a Los Angeles trader said. “We have headwinds from Treasuries. We have a bit more supply this week and we have to get through that. There are a number of blocks that are out from institutions so I think we have a couple things to work off of.”

He added that coming off of the rally earlier this week munis are now in a period of adjustment. “We will see how long that lasts – until lunch time or through the rest of the week.”

In terms of the primary market, the largest deal of the week, California’s $1.3 billion, is doing just OK, the trader said. “The first day was alright. There is a lot more wood to chop there so we’ll see how we do in day two, but usually there is a good fall off. I’ve heard they could potentially accelerate the institutional order period but there isn’t enough of a book right now to accelerate.”

Munis were mostly flat Wednesday morning, according to the Municipal Market Data scale. Yields inside seven years were steady while yields outside eight years were flat to one basis point higher.

On Tuesday, the two-year yield closed steady at 0.33%. The 10-year yield and the 30-year yield each fell three basis points to 1.94% and 3.32%.

Treasuries were weaker following a triple-digit gain in the stock market Wednesday. The two-year yield rose one basis point to 0.30%. The benchmark 10-year yield jumped five basis points to 2.04% while the 30-year yield increased six basis points to 3.19%.

In the primary market, Morgan Stanley is expected to hold a second day of retail for the largest deal of the week, $1.3 billion of California various purpose general obligation bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s. In the first retail order period, individual investors bought $329 million of bonds, or about 25% of the total offering.

Yields on the first series, $890 million of new money for infrastructure projects, ranged from 0.68% with a 3% coupon in 2014 to 4.45% with a 4.375% coupon in 2042. Credits maturing in 2035 and portions of 2042 were not offered for retail. The bonds are callable at par in 2022.

Yields on the second series, $410.2 million of refunding bonds, ranged from 0.68% with 3% and 4% coupons in a split 2014 maturity to 3.17% with a 5% coupon in 2024. Portions of credits maturing in between 2014 and 2022 were not offered for retail. The bonds are callable at par in 2022.

Barclays Capital is expected to hold a second day of retail on $472 million of Connecticut taxable and tax-exempt general obligation bonds, as well as SIFMA index bonds, rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch Ratings.

The first series, $212.4 million of SIFMA index bonds, were not offered for retail. The second series, $259.6 million of GOs, ranged from 2.02% with 3%, 4%, and 5% coupons in a split 2021 maturity to 3.49% with 3.5% and 4% coupons and 3.24% with a 5% coupon in a split 2032 maturity. Portions of credits maturing in 2025 to 2029 and in 2031 were not offered for retail.

Siebert Brandford Shank & Co. is expected to price $223.8 million of Pennsylvania Turnpike Commission revenue bonds in two series. The first series, $127.3 million of turnpike subordinate revenue bonds, is rated A3 by Moody’s and A-minus by Standard & Poor’s and Fitch. The second series, $96.5 million of motor license fund enhanced turnpike subordinate special revenue bonds, is rated Aa3 by Moody’s and AA by Fitch.

In the competitive market, Maryland Transportation Authority is expected to auction $211.4 million of revenue bonds, rated A2 by Moody’s, A by Standard & Poor’s, and A-minus by Fitch.

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