Market Post: Munis Tick Higher as Pullback Continues

The municipal bond market is weakening by slow accretion.

A second day of California general obligation bonds and Empire State Development Corp. paper have kept market participants busy and pushed up yields incrementally, traders say.

"It seems just as though it's getting cheaper," a trader who covers the southwestern region said. "It's been the same thing it's been for like a month. It's a few basis points a day, every day, every day. You look up at the end of the week and you're down 15."

This holds true for retail paper with 3.00% coupons, in particular, he added.

"In the secondary, it's had enough," the trader said. "You're starting to see stuff that came a month ago off 30 basis points. That's the problem. The market's always bounced back from these pullbacks; this one seems like it's really dragging on."

This week, muni volume is expected to climb to $8.18 billion from $6.34 billion last week. That boils down to $6.62 billion in negotiated issuance and $1.56 billion in competitive deals.

California general obligation bonds should anchor the week's volume. JPMorgan held a second day of retail for $2.16 billion of California various purpose GOs.

The bonds are rated A1 by Moody's Investors Service, A by Standard & Poor's, and A-minus by Fitch Ratings. Institutional pricing should follow Thursday.

Yields on the first series, $1.06 billion of various purpose GOs, ranged from 1.19% with coupons of 2.00% and 4.00% in a split maturity in 2018 to 4% priced at par in 2043. Bonds maturing in 2014 were offered via sealed bid. Portions of bonds maturing between 2017 and 2043 were not offered for retail. The bonds are callable at par in 2023.

Yields in the series were raised two basis points at the short end for the second day of retail.

Yields on the second series, $1.10 billion of various purpose GO refunding bonds, ranged from 1.19% with a 5.00% coupon in 2018 to 3.69% with a 4% coupon and 3.39% with a 5% coupon in a split 2033 maturity. Bonds maturing between 2014 and 2016 were offered via sealed bid. Bonds maturing between 2027 and 2032 were not offered for retail. The bonds are callable at par in 2023.

Yields in the series were raised two basis points at the short end and one basis point at the long end for the second day of retail.

Goldman, Sachs & Co. priced $364.2 million of California federally taxable GOs. The bonds have a 0.25% coupon in 2015 and 0.375% coupon in 2016. Spreads were 38 and 53 basis points above the comparable Treasury yield.

Goldman also priced a remarketing of $228 million of taxable California Build America Bonds for stem cell research and cures. The bonds have a 2.75% coupon in 2039 with a 175 basis point spread above the comparable Treasury.

Goldman took indications of interest on both issues Tuesday.

Wells Fargo Securities priced $643.1 million of Empire State Development Corporation, N.Y., urban development corporation personal income tax revenue bonds in two series. The bond are rated triple-A by Standard & Poor's and AA by Fitch.

Yields in the first series, $573 million of New York state PIT revenue bonds, ranged from 1.36% with a 4.00% coupon in 2019 to 3.54% with a 5.00% coupon in 2043. The bonds are callable at par in 2023.

Yields in the second series, $70.1 million of New York state PIT revenue bonds, ranged from 1.07% with a 4.00% coupon in 2018 to 2.80% with a 5.00% coupon in 2026. Bonds maturing in 2014 and 2015 were offered via sealed bid. The bonds are callable at par in 2023.

The most recent read on the tax-exempt market from the Municipal Market Data triple-A GO scale showed tax-exempt yields flat to two basis points higher beyond five years on the curve. Yields on Tuesday ended as much as four basis points higher: the 30-year yield rose one basis point to 3.09%. The 10-year closed steady at 1.99% while the two-year finished flat at 0.31% for the 16th straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale were mostly unchanged. The 10-year yield and the 30-year yield finished steady at 2.00% and 3.16%, respectively. The two-year held at 0.33% for the 11th session.

Treasuries stepped into Wednesday afternoon slightly weaker beyond the front end of the curve, much as they were earlier in the day's session. The benchmark 10-year yield and the 30-year yield have risen two basis points each to 2.05% and 3.24%, respectively. The two-year yield has remained at 0.27%.

For reprint and licensing requests for this article, click here.
Buy side
MORE FROM BOND BUYER