NEW YORK – The tax-exempt market strengthened Tuesday afternoon after a fairly quiet morning. Market participants were able to relax after the primary market provided firm direction.
“The morning was relatively quiet Tuesday, as the drift in Treasuries and anticipation over how the Washington deal would do seemed to make dealers and buyers cautious,” a New York trader said. “Early trades pointed to a roughly unchanged day, despite the slight weakness in Treasuries.”
He added after the bumps in prices on the Municipal Market Data scale Monday, “We are all way back to the levels that the market rejected on Jan. 19th, with the market looking on as to whether we would actually hold these levels this time up.”
Two Washington deals, a total of $978.6 million in debt, were well received with several of the larger maturities going away to customers, he said. “This positive reception, coupled with a reversal in Treasuries led to a fairly constructive tone to start the afternoon, though buyers still seem reluctant to go ‘all-in’ at these new lows. I suspect that if Treasuries remain firm and supply continues to remain light, we could be looking at lower yields in the immediate future.”
Munis were steady to firmer by Tuesday afternoon, according to the Municipal Market Data scale. Yields inside five years were steady while yield between the six-year and 18-year fell between one and three basis points. Outside 19 years, yields fell up to two basis points.
On Monday, the 10-year muni yield fell seven basis points to 1.70%, the lowest level since Jan. 18th when the 10-year muni yield set a record low at 1.67%. The 30-year yield also fell seven basis points to 3.16%, its lowest since the record 3.15% set Jan. 18. The two-year muni yield fell two basis points to 0.33%, its lowest since Sept. 27th.
Treasuries were higher by Tuesday afternoon. The benchmark 10-year yield fell three basis points to 1.82% while the 30-year yield dropped four basis points to 2.96%. The two-year was steady at 0.22%.
In the primary market, the biggest deal of the year so far came on the competitive calendar with Washington issuing $978.6 million of general obligation bonds. The bonds are rated Aa1 by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings. Last week, Fitch downgraded the state’s outlook to negative from stable. Moody’s followed Monday by slashing the outlook on Washington’s outstanding debt to negative from stable.
Bank of America Merrill Lynch won the bid for $715.2 million of various purpose GO refunding bonds. Yields ranged from 1.37% with a 5% coupon in 2019 to 3.00% at par in 2029. Debt maturing between 2015 and 2018, in 2023, 2024, 2027, and 2028 were sold but not available. The bonds are callable at par in 2022.
Wells Fargo won the bid for $263.4 million of motor vehicle fuel tax GO refunding bonds. Yields ranged from 0.45% with a 5% coupon in 2014 to 3.15% with a 3% coupon in 2029. Bonds maturing in 2015 and 2016 were not formally reoffered. The debt is callable at par in 2022.
On the negotiated side, Goldman, Sachs & Co. repriced $90 million of Dormitory Authority of State of New York Memorial Sloan-Kettering Cancer Center revenue bonds, rated Aa2 by Moody’s, AA-minus by Standard & Poor’s, and AA by Fitch.
Yields ranged from 0.49% with a 3% coupon in 2014 to 3.80% with a 5% coupon in 2041. The bonds are callable at par in 2022. From preliminary pricing, prices were bumped four to 10 basis points across the curve.
JPMorgan priced for retail $234.5 million of Nebraska Public Power District general revenue bonds. The credit is rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch. Pricing information was not available by press time.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming.
Bonds from an interdealer trade of Georgia 5s of 2023 yielded 1.84%, six basis points lower than where they traded Monday.
Bonds from an interdealer trade of Opelika, Ala., 4s of 2032 yielded 3.75%, five basis points lower than where they traded Monday.
Bonds from another interdealer trade of Metropolitan Government of Nashville and Davidson County 5s of 2036 yielded 3.25%, four basis points lower than where they traded the previous day.
Bonds from an interdealer trade of Delaware Health Facilities Authority 5s of 2044 yielded 4.52%, three basis points lower than where they traded Monday.