The tax-exempt market was trading mostly steady Thursday afternoon as most of the deals have been priced in the primary.
Traders said that while it was weaker in earlier trading sessions, the market has a steady tone to it.
“It’s pretty flat really,” a San Francisco trader said. “It seems surprisingly quiet given that Treasuries have begun to selloff here more as the day progresses but I’m not sure we have followed here in munis.”
He added there is some interesting coming from the sell side. “Sales guys are saying that if you have any interest near out offerings, let us know,” the trader said. “So I think there is an underlying feeling of softness but a reluctance to just cut offerings. But generally it’s flat to slightly weaker.”
Regarding the biggest deal that priced for institutions – the $10 billion California revenue anticipation notes – the San Francisco trader said it’s going well.
“It came in on the lower end of yields, but it didn’t do as well in retail as the one that came last fall,” he said. “However, I don’t think that was a great surprise. I also wouldn’t be surprised it if it came in even lower in repricing. I’m sure they feel they have a lot of demand for it on top of whatever did or did not get done in retail to go out at that lower end.
JPMorgan and Wells Fargo Securities priced $10 billion of the California RANs following a two-day retail order period. The notes are rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's and F-1 by Fitch Ratings.
Bonds in the first series of $2.5 billion yielded 0.33% with a 2.5% coupon maturing in May 30, 2013.
Bonds in the second series of $7.5 billion yielded 0.43 with a 2.5% coupon maturing in June 20, 2013.
Yields were initially quoted at 0.30% to 0.40% in the first series and 0.40% to 0.55% for the second series. A spokesman for the California state treasurer’s office said strong demand from institutional investors kept the final yields for both maturities at the low end of the preliminary ranges quoted for retail.
Retail investors placed about $3.235 billion of orders in the two-day retail pricing, according to a spokesman for the California state treasurer’s office. The retail orders placed made up 40.4% of the $8 billion of RANs that were offered to retail and 32.3% of the total $10 billion offering.
“We’re very satisfied with the retail results,” the spokesman said.
Regarding the institutional pricing, Bill Lockyer, the California state treasurer, noted “this is an outstanding result. $10 billion is always a heavy lift, regardless of market conditions, and we got it done at an excellent price for taxpayers. Their borrowing costs are very close to what they paid on last year’s RANs, and this deal was twice the size. The Governor and Legislature in the last couple of years have significantly improved California’s fiscal condition, and this result reflects increased investor confidence in the state’s financial management and health.”
Indeed, last year, California sold $5.4 billion of RANs, which yielded 0.38% for a May maturity and 0.40% for a June maturity.
In the rest of the primary market, Ramirez & Co. priced $290.5 million of Cities of Dallas and Fort Worth, Texas, Dallas-Fort Worth International airport joint revenue refunding bonds, subject to the alternative minimum tax. The bonds are rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch. Pricing details were not available by press time.
Bank of America Merrill Lynch priced $125.1 million of Michigan Finance Authority local government loan program revenue bonds, rated A3 by Moody’s and A-plus by Standard & Poor’s.
Yields ranged from 1.26% with a 3% coupon in 2014 to 4.12% with a 5% coupon in 2032. The bonds are callable at par in 2019 except for credits maturing in 2030 and 2031 which are callable at par in 2022.
On Wednesday, the 10-year Municipal Market Data yield climbed seven basis points to 1.87%, while the 30-year yield rose five basis points to 3.00%. The two-year finished unchanged at 0.29% for the 15th straight session.
After strengthening in the morning, Treasuries reversed course and traded weaker in the afternoon. The benchmark 10-year yield jumped three basis points to 1.84% while the 30-year yield spiked up four basis points to 2.95%. The two-year was steady at 0.30%.