NEW YORK – The tax-exempt market continues to weaken Monday afternoon, but the softness has slowed somewhat. Yields on the long end appear to be only five basis points higher, as opposed to the 10 basis point jumps seen last week.
“The market overall started off feeling like Thursday and Friday of last week, especially given the sell-off in Treasuries,” a New York trader said. “But volume is light.”
He added, “Since noon, the market seems to have stabilized at about five basis points in higher yields than Friday, but I am reserving judgment until we see some more volume in both the primary and secondary markets.”
Munis were slightly weaker Monday, according to the Municipal Market Data scale. Yields were steady inside four years, but increased up to four basis points on the longer end of the curve.
Last week, munis weakened Thursday and Friday after strengthening throughout the beginning of 2012. The 10-year and 30-year yields finished up nine basis points each to 1.83% and 3.34%. The two-year closed steady at 0.35% for its sixth consecutive trading session.
The losses on Thursday and Friday erased all gains made on the 10-year and 30-year since Jan. 6.
The big sell-off in Treasuries Monday morning was losing steam by the afternoon as yields fell one basis point from morning trading. But yields were still up significantly from Friday’s close. The benchmark 10-year and the 30-year yields were up three and four basis points to 2.07% and 3.15%, respectively. The two-year was steady at 0.25%.
In the primary market this week, $4.5 billion is expected to be issued, up from $3.1 billion last week. On the negotiated calendar, $3.8 billion is expected to come to market, up from last week’s $1.9 billion. In the competitive market, $735.6 million is expected, down from last week’s $1.2 billion.
Goldman, Sachs & Co. priced for retail $402 million of Florida’s JEA water and sewer system revenue bonds – the biggest deal of the week. The debt is rated Aa2 by Moody’s Investors Service, AA-minus by Standard & Poor’s, and AA by Fitch Ratings. Institutional pricing is expected Tuesday. Pricing information was not available by press time.
Ramirez & Co. Monday priced for retail investors a portion of the second biggest deal of the week: $400 million of New York City Municipal Water Financing Authority water and sewer system second-general resolution revenue bonds. Institutional pricing is expected to come to market Tuesday. Details were not yet available.
The New York trader said $350 million of term bonds from the MWFA deal were not offered for retail. “So we probably won’t know much about the market for those bonds until institutional pricing,” he said, but added that in the secondary market, the 5% term bond of 2044 from the last New York City Municipal Water Financing Authority traded at 3.92% Monday morning, about 30 basis points higher in yield than the low for this bond last Wednesday.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening on Monday from last week.
A dealer bought from a customer JEA electric system revenue 4s of 2033 at 4.10%, 22 basis points higher than where they traded last Thursday.
A dealer sold to a customer Municipal Electric Authority of Georgia 6.637s of 2057 at 6.09%, 12 basis points higher than where they traded last Wednesday.
Another dealer sold to a customer Wisconsin Health and Educational Facilities Authority 5s of 2028 at 3.99%, eight basis points higher than where they traded last Friday.
Bonds from an interdealer trade of State Public School Building Authority of Pennsylvania 5.138s of 2029 yielded 4.71%, seven basis points higher than where they traded last Wednesday.
Muni-to-Treasury ratios fell last week as munis outperformed Treasuries. On Friday, the five-year muni-to-Treasury ratio fell to 92.1%, down from 102.5% the week prior. The 10-year ratio closed at 90.1%, down from 91.9% the week before. The 30-year ratio fell to 107.7% from 110.0% the prior week.
