NEW YORK – Fears from Europe are forcing investors out of stocks and into Treasuries, and the rally in Treasuries is pulling munis along too.
“Obviously everything is driven by overseas,” said a trader in New York. “Our market is underperforming again pretty substantially.” The trader added the muni market will continue to underperform as the flight-to-quality trade continues.
“There is healthy new issuance this week and that’s where customers will gravitate,” the New York trader added. “But you’re asking customers to chase lower yields and they are reluctant to do that so we will see if there is some follow through and that is the next step.”
In Tuesday afternoon trading, muni yields continued to fall across the curve, with yields falling between two and 12 basis points, according to the Municipal Market Data scale. Yields fell between two and four basis points on the short-end, and yields fell between four and seven basis points in the five-year range. Credits maturing in 2018 saw yields fall eight to 11 basis points, while the 10-year yield fell as much as 12 basis points – taking the biggest hit. The long-end fell between eight and 11 basis points.
On Monday, the two-year closed at 0.44% and the 30-year was 3.75%. The benchmark 10-year muni yield closed at 2.39%.
Treasuries continued their rally Tuesday, with yields plummeting eight to 46 basis points across the curve since last Thursday. By early afternoon Tuesday, the two-year was down two basis points to 0.24%, the 10-year fell 15 basis points to 1.98%, and the 30-year fell 17 basis points to 2.97%.
In the negotiated market, JPMorgan priced $701.2 million of Connecticut general obligation bonds in two series. The bonds are rated double-A by all rating agencies.
Yields on the first series, $550 million of Series 2011D GO bonds, ranged from 0.44% with a 2% coupon in 2013 to 3.71% with a 5% coupon in 2031. Credits maturing in 2012 were offered via sealed bid. The bonds are callable at par in 2021.
Yields on the second series, $151.2 million of Series 2011E GO refunding bonds, ranged from 0.44% with a 5% coupon in 2013 to 2.20% with a 5% coupon in 2019. Credits maturing in 2012 were offered via sealed bid.
RBC Capital Markets priced $498 million of lease revenue bonds for the California State Public Works Board. The bonds are rated A2 by Moody’s Investors Service and BBB-plus by Standard & Poor’s and Fitch Ratings.
Yields ranged from 1.82% with a 2% coupon in 2014 to 5.25% with a 5.125% coupon in 2031. The bonds are callable at par in 2021.
In the competitive market, Bank of America Merrill Lynch won $300 million Washington Suburban Sanitation District consolidated public improvement bonds. The credit is rated AAA by Fitch.
Yields ranged from 0.34% with a 5% coupon in 2013 to 3.5% with a 4% coupon in 2028. Bonds maturing in 2012, 2015 to 2020, and 2029 to 2031 were sold but not available. The bonds are callable at par in 2021.
