Traders in the tax-exempt refused to buy bonds Wednesday morning as selling pressure continued to push bond prices down and yields up.
The largest deal of the week, about $330 million of Texas A&M University bonds priced Tuesday and Wednesday morning in a taxable and tax-exempt series and traders said spreads looked rich. In the secondary, traders were hesitant to put money to work because prices only continue to move lower with every session.
“It’s softer again this morning maybe three to four basis points even though Treasuries are about flat,” a New York trader said. “People are not willing to position much. It’s going to be down another three basis points the next day and it’s not worth it.”
Selling pressure came from retail investors who “are dumping paper.” In turn, mutual funds continue to sell holdings, this trader said. “It’s not a terrible mass exodus but there is definitely some selling pressure.”
Puerto Rico continues to pressure the market. Tuesday afternoon, a block size trade of Puerto Rico Highway and Transportation Authority bonds maturing in two years yielded over 6%. On the long end, yields are above 8%.
In the primary market, Wells Fargo priced $94.9 million of Board of Regent of Texas A&M University System revenue financing bonds, rated Aaa by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Yields ranged from 0.82% with a 1.875% coupon in 2016 to 4.12% with a 5% coupon in 2028. The bonds are callable at par in 2023. Bonds with 5% coupons yielded nine basis points to 32 basis points above Tuesday’s Municipal Market Data scale.
Tuesday, Wells priced $240 million of taxable bonds for the university. The bonds were priced at par to yield 0.38% in 2014 to 4.972% in 2043. Spreads ranged from 10 basis points to 115 basis points above the comparable Treasury yield.
In the competitive market, Portland should auction $215.5 million of revenue bonds, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Tuesday, yields on the triple-A Municipal Market Data scale ended as much as eight basis points weaker. The 10-year yield increased eight basis points to 3.02% and the 30-year yield rose four basis points to 4.49%. The two-year finished flat at 0.43% for the 34th straight session.
Yields on the Municipal Market Advisors scale ended as much as six basis points higher. The 10-year and 30-year yields rose five basis points each to 3.14% and 4.59%, respectively. The two-year closed unchanged at 0.55% for the 13th session.
Treasuries were mostly steady Wednesday morning after posting 11 basis-point losses Tuesday on the 10-year and 30-year yields. The two-year yield rose one basis point to 0.43% and the 30-year yield fell one basis point to 3.78%. The benchmark 10-year was steady at 2.86%.
In economic news, the July international trade balance widened to negative $39.1 billion in July, worse than analysts’ expected, and higher than the negative $34.5 billion trade gap in June. Imports came in at $3.5 billion while exports rose $1.1 billion.
“Both export and import volumes have shown an encouraging pickup over the latest three months relative to the trend over the last year, which we believe corroborates both the picture of stronger U.S. manufacturing activity and of an improvement in global economic activity,” wrote economists at RDQ Economics. “From the narrow perspective of third-quarter GDP accounting, the real trade balance in July was almost exactly in line with its average for the second quarter, which makes the trade gap neutral at this point for real GDP growth in the quarter.”