NEW YORK – The tax-exempt market was stronger Wednesday, although munis failed to keep up with Treasuries as fears from Europe pushed Treasury yields to new record lows.
“Munis are just lagging,” a Chicago trader said. “We are in a new range and no one wants to accept lower rates. Buyers are upset about it. And at this point it takes a little time when you get into these new ranges for people to accept it and then you see performance.”
He added that munis have been underperforming for the past three to four weeks, and the rally in the Treasury market Wednesday is making that worse. “So some people are even selling,” the trader said. “You have to be patient. If you panic you won’t make any money. But it’s a typical lagging environment and it’s not pretty.”
On the new-issue side, deals are being priced in two days and so many are coming in on the wider said, he said, referring to the triple-A rated Texas Permanent School Fund which has recently traded between 18 and 30 basis points off the Municipal Market Data scale. “Right now, its trading closer to 30 than it is to 18. Everything is widening right now.”
According to the MMD scale, munis were stronger Wednesday afternoon. Yields between five and 10 years fell as much as two basis points. Outside 11 years, yields dropped between one and four basis points.
On Tuesday, the 10-year yield and the 30-year yield closed flat for the fifth consecutive trading session at 1.83% and 3.14%. The two-year yield also closed steady at 0.33% for the fifth consecutive trading session.
Treasuries continued to strengthen Wednesday afternoon. The benchmark 10-year yield fell 11 basis points, setting a new record low of 1.63%. The 30-year yield plummeted 13 basis points to 2.71%. The two-year yield dropped two basis points to 0.28%.
In the primary market, Jefferies & Co. priced for institutions $251.6 million of Massachusetts Water Pollution Abatement Trust state revolving fund bonds in two parts - $155.6 million of new money and $96 million of refunding bonds. The credit is rated triple-A from all three major rating agencies.
Yields on the first pricing of $155.6 million ranged from 0.35% with a 2% coupon in 2014 to 4.00% with a 4% coupon in 2042. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2020. Yields were lowered as much as two basis points from retail pricing Tuesday.
Pricing on the $96 million portion was not available by press time.
Morgan Stanley priced $200 million of Indiana Finance Authority Midwestern disaster relief revenue bonds, rated Baa3 by Moody’s Investors Service and BBB-minus by Standard & Poor’s and Fitch Ratings. The bonds yielded 4.95% with a 5% coupon in 2032 and 5.05% with a 5% coupon in 2039. The bonds are callable at par in 2022.
JPMorgan priced $140.3 million of Dormitory Authority of the State of New York Columbia University revenue bonds, rated triple-A.
Yields ranged from 1.11% with 3%, 4%, and 5% coupons in a split 2018 maturity to 2.00% with 3% and 5% coupons in a split 2022 maturity.
On the competitive calendar, Citi won the bid for $231.5 million of New York’s Triborough Bridge and Tunnel Authority refunding bonds, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Yields ranged from 0.70% with a 5% coupon in 2015 to 4.00% with a 4% coupon in 2042. Credits maturing between 2012 and 2013 were not formally re-offered. The bonds are callable at par in 2022.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.
A dealer bought from a customer Maryland Health and Higher Educational Facilities Authority 6s of 2022 at 0.24%, three basis points lower than where they traded Tuesday.
Bonds from an interdealer trade of Illinois 5.1s of 2033 yielded 5.57%, two basis points lower than where they traded the day prior.
Bonds from an interdealer trade of Pennsylvania 5s of 2022 yielded 2.09%, one basis point lower than where they traded Tuesday.
Bonds from another interdealer trade of California 5s of 2042 yielded 4.08%, one basis point lower than where they traded the day before.