NEW YORK – The tax-exempt market was calmer Thursday morning after a flurry of new deals came to the market Wednesday. Traders took the morning to recover from yesterday’s deals ahead of several more big deals expected to come to market today.
Traders said munis were quiet as they digested the large amount of new issuance that hit the market Wednesday. “And, you have to remember that it’s a big school week off. So there are a lot of people away,” a New York trader said.
Munis were steady across the curve Thursday morning, according to the Municipal Market Data scale.
On Wednesday, the two-year yield was steady at 0.26%, its record low as recorded by MMD on Feb. 16. The 30-year yield was steady at 3.27%. The 10-year yield rose two basis points to 1.88%.
Since munis started weakening last Friday, the 10-year yield has risen six basis points while the 30-year yield has jumped five basis points.
Treasuries were steady to slightly firmer. The benchmark 10-year yield and the 30-year yield fell one basis point each to 2.02% and 3.16%. The two-year was steady at 0.31%.
In the negotiated market, Morgan Stanley is expected to price for institutions $800 million of New York City general obligation bonds, following two retail order periods. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
JPMorgan is expected to price $615 million of Port of Seattle intermediate lien revenue refunding bonds in three series, rated Aa3 by Moody’s and A-plus by Standard & Poor’s and Fitch.
The first series is expected to consist of $345.3 million of bonds not subject to the alternative minimum tax. The second series will be made up of $189.3 million of bonds subject to the alternative minimum tax.
The third series, $80.4 million of taxable bonds, were priced late Wednesday. The bonds were priced at par with coupons ranging from 0.883% in 2013 to 2.062% in 2017. Bonds maturing in 2012 were offered via sealed bid with a 0.40% coupon. The bonds were priced 60 to 120 basis points above the comparable Treasuries.
The city and county of San Francisco is expected to auction $331 million of general obligation bonds, rated Aa2 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
With three consecutive days of weaker munis, muni-to-Treasury ratios have risen as munis underperformed Treasuries and became cheaper. Since munis started weakening last Friday, the five-year ratio has risen to 79.1% on Wednesday from 75.6%. The 10-year ratio jumped to 93.5% from 91.5%. The 30-year muni-to-Treasury ratio increased to 103.8% from 102.5%.
The 10- to 30-year slope of the curve fell slightly to 139 basis points from 140 basis points last Friday.
Spreads have also tightened across the credit spectrum. The spreads on the two-year triple-A to single-A muni tightened to 44 basis points from 56 basis points at the beginning of the year as investors reached further out on the curve for yield. The spread on the 10-year triple-A to single-A muni fell to 89 basis points from 96 basis points. Similarly, the 30-year triple-A to single-A spread compressed to 83 basis points from 89 basis points at the beginning of the year.
In economic news, seasonally adjusted initial jobless claims held steady at 351,000 for the week ending Feb. 18. Continuing claims fell 52,000 to 3.392 million for the week ending Feb. 11.
The initial jobless claims fell short of the 354,000 expected by economists. Continuing claims also topped analysts’ expectations, coming in below the predicted 3.460 million.
“Recent unemployment claims data are consistent with a faster pace of improvement in labor market conditions in February,” wrote economists at RDQ Economics. “Employment growth appears likely to exceed 200,000 again in February.”
