NEW YORK — Munis ended flat across the curve Wednesday, proving the tax-exempt market can hold its own despite weaker Treasuries and a surge in the stock markets.
"We ended the day unchanged through the 10-year," said a trader in New York. "From there on out, it was down about two basis points overall," he said, referring to the cut in prices.
There was "light to moderate activity and firm new issue pricing," he added. "It was nothing robust, nothing strong, and slight adjustments made here and there."
And traders throughout the day said munis were mostly flat.
"It feels like an exercise bike," said a trader in Chicago. "We are riding it like crazy and not getting anywhere."
"Munis are hanging in and there are trades going on, but we are pretty much stuck at this level," he added. "No one is real anxious to sell and for as many issues as we've had the past few weeks, munis are still reasonably stable and it's hard to find paper that's interesting."
The trader added the stock rally, which forced Treasuries lower, had no effect on munis. "So far, there are no real deep trades that have given us pause to take a look at that."
Other traders look to the primary calendar to get a feel for how munis would trade. "We are certainly watching deals on the calendar and there is a lot of stuff coming up," said a trader in Los Angeles. "In general, the tone feels better but the long bond is off today."
He added there is "good interest" in deals. "Lower-rated deals seem to be coming in better than I might have thought. The higher-yield range has a stronger tone and is a buying opportunity to get yield."
But overall, the market is still volatile. "Treasuries are going up and down and munis are staying flat," he said. "So it's volatile. Muni rates can't go much lower and there is no demand for lower rates."
However, munis were mixed according to the Municipal Market Data scale, with yields on the short end falling and yields on the long end rising. The five- and six-year yields fell three basis points and the seven- and eight-year yields fell two basis points. But yields between the 20- and 22-year rose one basis points while the 23- and 24-year yields increased two basis points. Yields beyond the 25-year spot spiked four and five basis points.
On Wednesday, the two-year muni closed at 0.42% for its 20th consecutive trading session. The 10-year finished flat a 2.22% and the 30-year yield finished up five basis points to 3.84%.
Treasuries weakened on the long end as the broader stock indexes surged over 4% on Wednesday. The benchmark 10-year yield increased seven basis points to 2.08% while the 30-year yield jumped nine basis points to 3.07%. The two-year yield fell one basis point to 0.26%.
The Dow Jones Industrial Average surged 4.20%, or 485 points, to 12,040.6.
In the primary market, Citi priced for institutions $1 billion of Puerto Rico Sales Tax Financing Corp. sales tax revenue bonds. The credit is rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Yields on the first series, $902 million of current interest bonds ranged from 3.05% with a 4% coupon in 2020 to 5% priced at par in 2046. The bonds are callable at par in 2021. Yields were cut up to 16 basis points inside the 12-year spot from retail pricing Tuesday. On the longer end, coupons were raised and included a split 2040 maturity.
Yields on the second series, $101.6 million of capital appreciation bonds, had maturities ranging from 2034 to 2041. The bonds were priced from 6.15% to 6.25% yield to maturity. Yields were cut between five and nine basis points from Tuesday's retail pricing.
The New York trader said coupons and maturities can be changed depending on demand. "It goes where demand goes," he said.
JPMorgan priced $672.5 million of New York Liberty Development Corp. liberty revenue bonds. The credit is rated Aa2 by Moody's, and AA-minus by Standard & Poor's and Fitch.
Bonds yielded 4.65% with a 5% coupon in 2041 and 4.55% with a 5.25% coupon in 2043. The debt is callable at par in 2021.
Goldman, Sachs & Co. priced for institutions $451.6 million Connecticut special tax obligation bonds. The bonds are rated Aa3 by Moody's and AA by Standard & Poor's and Fitch.
Yields on the first series, $221.2 million of special tax obligation bonds for transportation infrastructure, ranged from 0.55% with a 5% coupon in 2013 to 4% coupon price at par and 3.90% with a 5% coupon on a 2031 split maturity. Yields were raised between three and five basis points from Tuesday's retail pricing. The debt is callable at par in 2021.
Yields on the second series, $230.4 million of special tax obligation refunding bonds for transportation infrastructure, ranged from 0.55% and 0.55% with 2%, 3%, and 5% coupons in a split 2013 maturity to 2.80% and 2.975% with 4% and 3% coupons in a split 2022 maturity. Credits maturing in 2012 were offered via sealed bid. The debt is callable at par in 2021. Coupons and maturities of the deal were changed from Tuesday's retail pricing.
Ramirez & Co. priced for institutions $482 million of New York's Metropolitan Transportation Authority transportation revenue bonds. The bonds are rated A2 by Moody's and A by Standard & Poor's and Fitch.
Yields ranged from 1.02% with 2.5% and 3% coupons in a 2013 split maturity to 4.905% with a 4.87% coupon in 2046. The debt is callable at par in 2021. Yields were cut 10 basis points on the short end, but raised up to three basis points on the long end.
In the competitive market, Citi won the $131.9 million Virginia Public School Authority school tax credit bonds. The taxable bonds mature in 2030 with a 4.25% coupon priced at par. The bonds are priced to yield 120 basis points over Treasuries.
"Today's primary issuance would generally show bumps in the serial range from retail or preliminary pricings but the longer end of these loans was not so clear cut," wrote MMD's Randy Smolik. "Most of the large issuance today was heavily weighted in the dollar-bond sector. Despite some attractive spreads shown initially in the long end, some deals had to cheapen or restructure into higher coupons."
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening on the long end of the curve.
A dealer sold to a customer Massachusetts School Building Authority 5s of 2041 at 4.28%, nine basis points higher than where they traded Monday.
Bonds from an interdealer trade of New York City Transitional Finance Authority 5s of 2038 yielded 4.29%, seven basis points higher than where they traded Monday.
Bonds from an interdealer trade of New Jersey Transportation Trust Fund Authority 5s of 2042 yielded 5.00%, seven basis points higher than where they traded Tuesday.
Bonds from an interdealer trade of Westchester County Health Care Corp. 5.125s of 2041 yielded 5.26%, four basis points higher than where they traded Monday.
In economic news, pending home sales soared 10.4% to 93.3 in October, the National Association of Realtors said Wednesday. The surge comes after an unrevised 4.6% decrease to 84.5 in September.
The reading far exceeded expectations. Economists polled by Thomson Reuters predicted a 1.4% increase for the index.
