Market Post: Primary Steals Focus as Munis Rally

NEW YORK — The tax-exempt market ended stronger for the third consecutive session as a double digit rally on Monday carried over into a smaller rally on Tuesday. Issuers in the primary market lowered yields in repricing and moved deals up to take advantage of strong interest.

Munis were stronger Tuesday, according to the Municipal Market Data scale. Yields inside three years were flat while the four- to nine-year yields fell two basis points. The 10- to 14-year yields dropped three basis points while yields outside 15 years fell two to three basis points.

On Tuesday, the two-year yield closed steady at 0.33%. The 10-year yield and the 30-year yield each fell three basis points to 1.94% and 3.32%.

Munis followed Treasuries higher. The two-year yield fell three basis points to 0.29%. The benchmark 10-year yield and the 30-year yield each fell five basis points to 1.99% and 3.13% — lows not seen in a month and the first time the 10-year closed below 2% since March 7.

"The tone is definitely stable from Monday's levels," a New York trader said. "There has not been a big push in the past few hours as Treasuries started to go lower again."

He added in the primary market, the second largest issue of the week, the New York City Transitional Finance Authority deal, was bumped in the morning from Monday's levels based on the overall movement in the market.

Indeed the deal was very well received. Barclays Capital was expected to price its second day of retail of $800 million of NYC TFA future tax-secured bonds and subordinate bonds, but instead priced for institutions. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's and Fitch Ratings.

Yields ranged from 0.37% with 2.50% and 4% coupons in a split 2014 maturity to 3.90% with a 4% coupon and 3.80% with a 5% coupon in a split 2042 maturity. Yields were lowered three to 10 basis points across the curve from retail pricing. The bonds are callable at par in 2022 except for credits maturing in 2027 and 2028 which are callable at par in 2018.

NYC TFA was expected to auction $100 million in the competitive market Wednesday, but pushed pricing up to Tuesday due to interest. Citi won the bid. The term bonds mature in 2034. Prices were not available by press time.

The largest deal of the week, $1.3 billion of California various purpose general obligation bonds, rated A1 by Moody's and A-minus by Standard & Poor's, priced its first day of retail. Tuesday afternoon, the New York trader added the California deal "seems a little slow for the first day."

Priced by Morgan Stanley, yields on the first series, $890 million of new money for infrastructure projects, ranged from 0.68% with a 3% coupon in 2014 to 4.45% with a 4.375% coupon in 2042. Credits maturing in 2035 and portions of 2042 were not offered for retail. The bonds are callable at par in 2022.

Yields on the second series, $410.2 million of refunding bonds, ranged from 0.68% with 3% and 4% coupon in a split 2014 maturity to 3.17% with a 5% coupon in 2024. Portions of credits maturing in between 2014 and 2022 were not offered for retail. The bonds are callable at par in 2022.

In other primary deals, Barclays priced for retail $472 million of Connecticut taxable and tax-exempt general obligation bonds, as well as SIFMA index bonds, rated Aa3 by Moody's and AA by Standard & Poor's and Fitch.

The first series, $212.4 million of SIFMA index bonds, were not offered for retail. The second series, $259.6 million of GOs, ranged from 2.02% with 3%, 4%, and 5% coupons in a split 2021 maturity to 3.49% with 3.5% and 4% coupons and 3.24% with a 5% coupon in a split 2032 maturity. Portions of credits maturing in 2025 to 2029 and in 2031 were not offered for retail.

Goldman, Sachs & Co. priced $237.2 million of Agriculture Improvement and Power District refunding revenue bonds for the Arizona Salt River Project Electric System. The issue is rated Aa1 by Moody's and AA by Standard & Poor's.

The bonds yielded 3.05% with a 5% coupon in 2029, 3.09% with a 5% coupon in 2030, and 3.14% with a 5% coupon in 2031. Yields were lowered three to five basis points from preliminary pricing. The bonds are callable at par in 2022.

In the competitive market, Barclays won the bid for $240.1 million of Los Angeles GOs, rated AA-minus by Standard & Poor's and Fitch. Yields ranged from 0.69% with a 5% coupon in 2015 to 2.68% with a 3% coupon in 2025. Credits maturing in 2013 and 2014 were not reoffered.

In the secondary market, trading volume was moderate, according to the New York trader.

According to data compiled by Markit, munis were stronger between two and 11 basis points. Missouri 5s of 2019 fell four basis points to 1.40% and Port Authority of New York and New Jersey 5s of 2020 dropped 11 basis points to 2.55%. Dallas-Fort Worth International Airport 5s of 2032 fell six basis points to 3.77% and Houston Community College System 5s of 2017 dropped 10 basis points to 1.00%.

Trades reported by the Municipal Securities Rulemaking Board also showed firming over the past several trading sessions. A dealer bought from a customer New York City Municipal Water Finance Authority 5s of 2026 at 2.83%, 23 basis points lower than where they traded a week ago.

A dealer sold to a customer District of Columbia 3s of 2013 at 0.38%, 17 basis points lower than where they traded Monday. A dealer bought from a customer Pennsylvania's State Public School Building Authority 5s of 2033 at 0.41%, three basis points lower than where they traded last Wednesday.

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