Market Post: Munis Weaker as Attention Turns to Calif. RANs

The tax-exempt market was focused on the primary Tuesday afternoon as all attention turned to the pricing of the $10 billion California revenue anticipation note deal.

Overall, traders said the market was weaker on the long end as participants cut prices to get bonds out the door. One trader noted that the short-end is stronger and buyers look to invest in the short end to make sure bonds mature before rates are expected to rise in a few years.

"In the short stuff, I think we just continue to go up in prices and down in yield," a San Francisco trader said. "I don't know if it is people thinking that rates are going to go up so they want to be invested real short to have the money mature and be able to reinvest at higher rates. That's the only thing I can think of is rates look like they could go higher. But every time the 10-year Treasury gets at this range, yields come back down."

On the long end, the trader said munis were still weaker.

In the primary market Tuesday, JPMorgan and Wells Fargo Securities priced for retail for $10 billion of California revenue anticipation notes, rated MIG-1 by Moody's Investors Service, SP-1-plus by Standard & Poor's and F-1 by Fitch Ratings. A second retail order period is expected Wednesday followed by institutional pricing on Thursday.

Bonds on the first series of $2.5 billion yielded 0.30% to 0.40% with a 2.5% coupon in 2013. Other portions of credits maturing in 2013 were not offered for retail.

Bonds on the second series of $7.5 billion yielded 0.40% to 0.55% with a 2.5% coupon in 2013.

A spokesman for the California treasurer's office said the 2011 RAN sale yielded 0.38% for credits maturing in May 2012 and 0.490% for credits maturing in June 2012.

The San Francisco trader said the deal will most likely go really well. "I put in for some and haven't heard anything but I am certain that it will do well and I think yields will probably be at the lower end of the range just because there's just nothing around." He added that yields were quoted to investors between 40 basis points and 55 basis points and the deal could easily come in around the 40-basis-point to 42-basis-point range.

Going into the deal, traders had mixed reactions. "I think the California RAN deal will chew up some work hours," one trader tweeted. "After that we should do better. Things will bog down a bit until all orders are in."

Another trader said the California deal was the only exciting deal. "It's a sleepy day so far," this trader tweeted. "California RANs is about the only interesting thing going on. Retail interest is said to not be overwhelming."

Outside that deal, Goldman, Sachs & Co. priced and repriced $468.9 million of Chicago Board of Education unlimited-tax GOs, rated A1 by Moody's and A-plus by S&P and Fitch.

The bonds yielded 3.98% with a 5% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered two basis points from preliminary pricing.

In the competitive market, Citi won the bid for $290.32 million of San Francisco GOs, rated Aa2 by Moody's and AA by Standard & Poor's. Pricing information was not available by press time.

The New Jersey Environmental Infrastructure Trust auctioned $208.76 million of triple-A rated revenue bonds in two transactions - a $198.42 million deal and $10.34 million.

Bank of America Merrill Lynch won the bid for $198.42 million. Yields ranged from 0.20% with a 3% coupon in 2013 to 2.39% with a 4% coupon in 2026.

Janney Montgomery Scott won the bid for $10.34 million. Prices were not yet available.

On Monday, the 10-year Municipal Market Data yield closed steady at 1.76% while the 30-year yield finished flat at 2.92%. The two-year finished steady at 0.29% for the 13th consecutive session.

Treasuries continued to weaken Tuesday afternoon. The benchmark 10-year yield jumped six basis points to 1.72% while the 30-year yield spiked up eight basis points to 2.82%. The two-year yield rose one basis point to 0.28%.

 

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