NEW YORK — Municipal bond traders are noticing that no one wants to stick his neck out for the new issuance. The result is that deals are coming in at wider spreads, and liquidity in the secondary is harder to find.
“Everyone’s looking for someone to step forward first, and since they’re not, these deals are coming in at wider spreads and are a little bit more challenging to get done,” a trader in Florida said.
On the competitive side of the market, credits are trading up to 25 basis points wider than they typically come into the marketplace, the trader said. This would indicate that buyers are not given enough reads, pre-sale.
For negotiated issues, none of the deals seem to have been priced cheaply enough to match the expectations of many of the accounts, he added.
“So, the secondary is suffering for that,” the trader said. “Guys are having a very difficult time finding liquidity. Accounts are still finding reasonable liquidity, obviously at adjusted levels. But dealer-to-dealer trades are at significantly lower levels, unless it’s in the inquiry-specific bids.”
Tax-exempt yields continue to climb higher in the face of the onslaught of new supply, particularly around the belly of the curve, according to the Municipal Market Data scale. Through two years they are one to three basis points higher. Beyond that point they are seven to 15 basis points weaker.
The 10-year muni yield rose five basis points Tuesday to 2.29%. The 30-year yield slipped one basis point to 3.54%.
The two-year yield held steady for a fifth straight session at 0.34%.
Treasury yields were on the rise as the market crossed into midday Wednesday. The benchmark 10-year Treasury yield has increased six basis points to 1.90%.
The 30-year yield has also risen six basis points to 2.87%. The two-year yield has inched up one basis point to 0.27%.
In total, $8.26 billion of new issuance is expected this week. Last week, the market saw a revised $7.69 billion in new supply.
Goldman, Sachs & Co. priced $648.7 million of Trinity Health Credit Group in five series. The deal is from five separate issuers, including the Michigan Finance Authority; California Statewide Communities Development Authority; Franklin County, Ohio; Montgomery County, Md.; and the Illinois Finance Authority. The bonds were rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields for the first issue, $325.2 million of Michigan Finance Authority hospital revenue and refunding bonds, ranged from 4.95% with a 4.875% coupon in 2031 to 5.10% with a 5.00% coupon in 2039.
The second issue, $106.3 million of California Statewide Communities Development Authority revenue and refunding bonds, was priced at par to yield 5.00% in 2041. The third issue, $14.5 million of Franklin County, Ohio revenue bonds, was priced at par to yield 5.00% in 2040.
The fourth issue, $63 million of Montgomery County, Md., revenue and refunding bonds, a split maturity in 2040 was priced at par to yield 4.75%, and yielded 4.75% with a 5.00% coupon. Yields for the last issue, $139.7 million of Illinois Finance Authority revenue bonds, ranged from 0.65% with a 2.00% coupon in 2012 to 5.00% priced at par in 2030.
Morgan Stanley priced $584. 8 million of Lower Colorado River Authority, Texas, transmission contract refunding revenue bonds for the LCRA Transmission Corporation project in two series. The bonds were rated A2 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch.
Yields for the first series, $427.9 million, ranged from 0.84% with a 5.00% coupon in 2013 to 4.60% with coupon of 4.375% and 5.00% in a split maturity in 2041. Debt maturing in 2012 was offered in a sealed bid. There are no orders for credits maturing in 2013, 2014, 2016, 2019, 2020, 2022, 2023, and 2041.
Yields for the second series, $156.9 million, ranged from 0.84% with a 2.00% coupon in 2013 to 3.57% with a 5.00% coupon in 2023. Debt maturing in 2012 was offered in a sealed bid. There are no orders for credits maturing in 2013, 2014, 2016, 2017, and 2023.
In the competitive arena, Bank of America Merrill Lynch won $280 million of Virginia Public Building Authority public facilities revenue bonds. The bonds were rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields ranged from 1.12% with a 5.00% coupon in 2015 to 4.00% priced at par in 2029. Debt maturing in 2012 through 2014, 2019 and 2020, and 2030 and 2031 was sold but not available.
The deals are generating interest, but at a price to issuers. “Primary deals were still offering shock levels to generate buying interest,” MMD analyst Randy Smolik wrote in a midday research post. “Buyers jumped on the $280 million Virginia PBA loan in the 2014-to-2024 range but at large concessions of plus-45 to plus-50 basis points to current MMD.”
