NEW YORK – Traders are experiencing a love-hate relationship with the tax-exempt market on Wednesday. Muni traders say that while $25 billion of reinvestment money hit the market, which should spur buying, most buyers aren’t willing to participate while yields stay so low.
“Treasuries are off a little and I still think there is a lot of cash today,” a Chicago trader said. “There is about $25 billion so there is cash still hanging around. If you’re compelled to get in the market as an investor, you get involved. If you’re not compelled, those people start backing away from the table.”
He added that there is trepidation on the part of dealers, who are looking to build inventories. “Are you looking to build inventory or not? I think it’s more not.”
Some of the hesitation comes after a fantastic January for munis, where yields were pushed to record lows. “You have to put money away for six years to even get 1%,” the trader said. “So if it’s your money, where do you want to put it? If there is any sort of judgment involved, you’re tapping the brakes on munis a little.”
Munis were steady across the curve Wednesday morning, according to the Municipal Market Data scale.
On Tuesday, the 30-year yield closed at 3.14%, beating the previous record low of 3.15% set Jan. 18. The 10-year muni closed down two basis points to 1.68%, one basis point higher than its low of 1.67% set Jan. 18. The two-year was steady at 0.33%, its lowest since Sept. 27th.
Treasuries were weaker Wednesday morning. The two-year yield rose one basis point to 0.24%. The benchmark 10-year yield rose four basis points to 1.84% while the 30-year yield increased five basis points to 2.99%.
In the primary market, JPMorgan priced $1 billion of Government Development Bank of Puerto Rico senior notes, a day ahead of schedule and double the amount originally planned. The debt is rated Baa1 by Moody’s Investors Service and BBB by Standard & Poor’s.
Bonds maturing in 2015 were priced at par to yield 3.448%. Bonds maturing in 2017 yielded 4.008% with a 3.875% coupon. Debt maturing in 2019 yielded 4.491% with a 4.375% coupon.
The bonds were priced to yield 315, 330, and 325 basis points above the comparable Treasury yield.
Still ahead, JPMorgan is expected to price for institutions $234.5 million of Nebraska Public Power District general revenue bonds after a retail order period Tuesday. The credit is rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch Ratings.
On the competitive calendar, Virginia Transportation Board is expected to auction $121.4 million of revenue bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s.
Throughout January, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became more expensive. The 10-year muni-to-Treasury ratio fell to 93.3% on Tuesday from 96.4% at the beginning of the month. The 30-year ratio fell to 106.8% from 119.4%. The five-year ratio was the exception as ratios rose to 100% from 98.9% at the beginning of the year.
In economic news, the ISM index grew to 54.1 in January from 53.1 in December, the Institute for Supply Management said. The gain was slightly below expectations of 54.5, but those predictions were made before the ISM’s annual benchmark revisions were announced Tuesday.
