NEW YORK – Yields in the tax-exempt market headed higher Thursday afternoon as traders said yields were too low to begin with and needed to rise to a new range.
“It’s definitely a little weaker,” a Chicago trader said. “We’re not up big and we’re not down big. We’re just trending lower.”
He added that between the $25 billion in redemptions in each May and June, there is plenty of money to put to work. “There is a lot of support still. But a lot of our customers are saying ‘I really need a new idea’ and now we’re back to more of the same.”
Munis were weaker Thursday afternoon, according to the Municipal Market Data scale. Yields inside six years were steady while yields outside seven years rose up to three basis points.
On Wednesday, the two-year yield closed steady at 0.33%. The 10-year yield jumped three basis points to 1.97% while the 30-year yield increased two basis points to 3.34%.
Treasuries were slightly weaker. The benchmark 10-year yield and the 30-year yield each rose one basis point to 2.04% and 3.20%. The two-year was steady at 0.29%.
In the primary market, Morgan Stanley priced for institutions the largest deal of the week, $1.3 billion of California various purpose general obligation bonds, rated A1 by Moody’s Investors Service and A-minus by Standard & Poor’s and Fitch Ratings. After a two-day retail order period, individual investors bought $418.9 million, or 32.2%, of the total deal, according to a spokesman for the California state treasurer.
In institutional pricing, yields on the first series, $890 million of new money for infrastructure projects, ranged from 0.68% with a 3% coupon in 2014 to 4.47% with a 4.375% coupon and 4.39% with a 5% coupon in a split 2042 maturity. The bonds are callable at par in 2022. Yields were increased two to four basis points outside of 2017 maturities for retail pricing.
Yields on the second series, $410.2 million of refunding bonds, ranged from 0.68% with 3% and 4% coupons in a split 2014 maturity to 3.20% with a 5% coupon in 2024. The bonds are callable at par in 2022. Yields were increased one to five basis points from retail pricing.
In the competitive market, South Carolina auctioned $144.1 million of general obligation bonds in two pricings, following a $76.8 million pricing Wednesday. The credit is rated Aaa by Moody’s and Fitch Ratings and AA-plus by Standard & Poor’s.
Bank of America Merrill Lynch won the bid for $82.6 million of GOs priced in two series. Yields on the he first series, $31.4 million of transportation infrastructure refunding bonds, ranged from 0.20% with a 4% coupon in 2013 to 2.71% with a 2.5% coupon in 2025. Credits maturing in 2015, 2016, 2018, and 2019 were sold but not available. The bonds are callable at par in 2022. Bonds in the second series, $51.2 million of state capital improvement bonds, were sold but not available. Maturities ranged from 2013 to 2019.
Bank of America also won the second pricing of $61.5 million. Bonds on the first series, $32.8 million of state school facilities refunding bonds, yielded 0.30% with a 3% coupon in 2013. Credits maturing between 2014 and 2018 were sold but not available. Yields on the second series, $28.7 million of state economic development refunding bonds, ranged from 0.30% with a 3% coupon in 2013 to 3.12% with a 3% coupon in 2029. Credits maturing in 2016, 2019, 2020, and between 2024 and 2027 were sold but not available. The bonds are callable at par in 2022.