New bond issues were the focus of market participants Wednesday as municipal bonds followed Treasury weakening.
With municipal issuance this week projected to reach $5.28 billion, buyers are seeing the opportunity to take on new paper, even while the market weakens from the most expensive levels since 2011.
"The market got a little ahead of itself the last couple weeks and reached a point where I guess people thought we were due for a pull back," a New Jersey-based trader said in an interview. "What we saw in yesterday's Treasuries was reflected on today's yields."
Municipal bonds weakened Wednesday morning after credit spreads at market closing on Tuesday showed 10-year bonds were the most expensive in almost three years. Yields on 10-year AAA-rated GOs were 31 basis points lower than those on Treasuries maturing in the same year, according to Thomson Reuters data Tuesday afternoon, the most negative spread since July 25, 2011.
The second-biggest deal of the week, $650 million of Citi-led New York City general obligation bonds, held institutional pricing Wednesday. The deal went through two days of retail pricing, with yields lowered as much as five basis points.
"The Citi deal looks fairly fully priced right now," the trader said. "We're weaker by six basis points today so I'm not sure if they're going to change it to reflect that."
Citi priced 5%-coupon bonds maturing in 2036 with a 3.97% yield for institutions and 20-year maturity bonds with a 4% coupon at 4.15%. Yields on the shortest and longest-term bonds were unchanged from retail pricing, at 0.56% with a 3% coupon in 2017 and 4.25% with a 4% coupon in 2039, respectively.
Also in the negotiated market, Goldman Sachs sold $171.39 million of Kentucky Asset Liability Commission project notes for the state's highway trust fund. The issuance contains both funding and refunding notes.
Yields on the notes range from 2.81% with a 3% coupon in 2023 to 3.35% with a 5% coupon in 2026. The refunding note yields start at 0.27% with a 1% coupon for 2015 maturities, and go as high as 0.66% on 5%-coupon notes in 2017.
The state of Maryland issued a three-tier general obligation deal to the competitive marketplace Wednesday totaling $737.4 million. New money bonds won by Bank of America Merrill Lynch comprise $450 million of the deal. The state also issued $237.4 million of tax-exempt refunding bonds won by JP Morgan Securities.
With reporting from Hillary Flynn and Maria Bonello.
