NEW YORK — The new muni deals are flooding into the primary market at wide spreads to benchmarks. Low nominal yields are applying pressure and keeping activity in the secondary market muted, a trader in Chicago said.
“Deals are priced at wider spreads than we’ve seen normally due to the low benchmarks — MMD for tax-exempt and Treasuries for taxables, he said. “This is likely to continue for the rest of the week; it’s the only way to get business transacted.”
Tax-exempt yields have emerged from the morning mixed, according to the Municipal Market Data scale. They were steady through three years, and between 18 and 20 years.
Around those ranges, they are flat to four basis points higher on the short end out to 17 years, and flat to two basis points lower beyond 21 years.
The 10-year muni yield rose two basis points Monday to 2.24%. The 30-year and the two-year yields held steady on the day at 3.55% and 0.34%, respectively.
Treasury yields, after firming across the middle and far end of the curve in the morning, are weaker crossing noon. The benchmark 10-year Treasury yield has risen six basis points to 1.83%.
The 30-year yield has jumped seven basis points to 2.81%. The two-year yield ticked up one basis point to 0.25%.
“Unless you see yields start rising, secondary activity won’t pick up,” the trader said. But munis still look attractive, he added. “The whole curve is cheaper than the Treasury curve, so the asset class as a whole is undervalued.”
More new issuance, up to $8.26 billion, is expected for this week. Last week, the market saw a revised $7.69 billion in new supply.
Many new deals were expected on the day. In the largest deal anticipated in the competitive market, the Dormitory Authority of the State of New York is expected to sell $515.6 million of personal income tax general purpose revenue bonds in two separate issues.
Wells Fargo Securities won $460.7 million of the DASNY general purpose revenue bonds. The bonds were rated AAA by Standard & Poor’s and AA by Fitch Ratings.
Yields ranged from 0.50% with a 5.00% coupon in 2013 to 4.31% with a 4.25% coupon in 2041. Credits maturing in 2012, 2014, 2017, and 2033 were not reoffered. The second issue had yet to sell.
Bank of America Merrill Lynch won $241.8 million of Florida Board of Education public education capital outlay refunding bonds. The bonds are rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch.
Yields range from 2.87% with a 5.00% coupon in 2022 to 3.03% with a 5.00% coupon in 2023. Credits maturing in 2024 and 2025 were sold, but not offered.
On the negotiated side, Morgan Stanley priced $608.3 million of Triborough Bridge and Tunnel Authority general revenue refunding bonds for New York’s Metropolitan Transportation Authority bridges and tunnels. The bonds were rated Aa2 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields range from 0.35% with a 2.00% coupon in 2013 to 3.61% with coupons of 3.50% and 5.00% in a split maturity in 2028.
Credits maturing in split and multiple maturities in 2013, 2014 and from 2016 through 2022, as well as 2024, 2026, and 2028 were not offered. Yields firmed three basis points from the retail pricing for debt maturing in 2013. But they rose five basis points for credits maturing in the intermediate and long end.
