The municipal bond market opened the first trading week of April on a strong note as primary deals were very well received and leftover balances were bought in the secondary markets Thursday and Friday.
Overall, the market has been very strong in April, said Burt Mulford, portfolio manager and trader at Eagle Asset Management. “We’ve seen a significant turnaround in levels. March was weak as expected but April tends to be firmer. There is also anticipation of money coming due May 1 and June 1 so institutions want to put money to work so they don’t have to chase paper when bonds are coming due.”
In the primary market, Bank of America Merrill Lynch won the bid for $950 million of Pennsylvania general obligation bonds at a true interest cost of 2.90%. Yields ranged from 0.17% with a 1% coupon in 2014 to 3.34% with a 4% coupon in 2033. The bonds are callable at par in 2023, and are rated Aa2 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.
Pennsylvania came with spreads in the teens to low 20s depending on the maturity, said Mulford. “There were some pre-sale orders but most of the bonds traded once they took down the deal.”
Wednesday, a New York trader said spreads came in tighter than where the bonds were trading earlier in the week in the secondary market. “There is a strong number on Pennsylvania compared to where it was trading. There are definitely buyers out there.”
“The issue was attractively priced,” said analysts at Markit, adding that 10-year 5% coupon Pennsylvania GOs were evaluated at 25 basis points over the internal benchmark and the new issue came in at 15 basis points over.
Illinois auctioned $800 million of GOs Tuesday in two pricings, rated A2 by Moody’s, A-minus by Standard & Poor’s, and A by Fitch.
B of A Merrill won the bid for $450 million of tax-exempts. Credits maturing between 2025 and 2034 were insured by Assured Guaranty Municipal and were rated A2 by Moody’s and AA-minus by Standard & Poor’s. Yields ranged from 0.88% with a 2% coupon in 2014 to 4.44% with a 5% coupon in 2038. The bonds are callable at par in 2023.
B of A Merrill also won the bid for $350 million of taxable GOs. The bonds were priced at par with coupons ranging from 1.1% in 2014 to 5.52% in 2038.
“Illinois blew out of the gates,” Mulford said, adding the spread in the 10-year looked tight at 140 basis points above the MMD scale. “But the spread was compelling compared to high grades.”
He added there was demand in the shorter and longer maturities, with a gap of interest in the 11- to 18-year part of the curve.
Mulford said there has been a bigger appetite for higher yielding credits and Pennsylvania did not do quite as well as Illinois. But any balances that were left over were bought Thursday and Friday morning in the employment report rally.
The secondary market started off quiet and picked up pace as the week progressed. “The secondary became very active,” Mulford said. “Broker dealers are having a hard time keeping bonds in their inventory.”
He added the short-end of the market is significantly underperforming. “The 10 to 30 year area is doing very well and is up significantly but 2 and 3 year paper is unchanged.”
Trades reported by the Municipal Securities Rulemaking Board showed higher levels of activity as the week progressed.
On Monday there were 39,354 trades, down from the 30-day average of 39,997 trades. Par value traded was $9.623 billion, down from the 30-day average of $10.785 billion.
Activity on Tuesday notably increased. There were 44,469 trades, up from the 30-day average of 40,389 trades. Par value traded at $10.706 billion came in just under the 30-day average of $10.882 billion.
Wednesday’s activity was also high. There were 43,507 trades, up from the 30-day average of 40,477 trades. Par value traded was $13.311 billion, up from the 30-day average of $11.063 billion.
On Thursday, there were 43,448 trades, up from the 30-day average of 40,526 trades. Par value traded was $16.048 billion, up significantly from the 30-day average of $11.257 billion.
In retail trades of under 100 bonds — or $100,000 par value — secondary activity was the lowest its been in the past five weeks, according to data from BondDesk Group.
There were 48,508 buy trades for the week ending April 3 compared to the previous week’s 60,567 buy trades. The number of buy trades was the lowest in the past five weeks.
Sell trades were also down to 27,311 versus the previous week’s 34,609 trades. The number of sell trades was also the lowest in the previous five weeks.
The ratio of buy trades to sell trades came in at 1.8, on par with the 1.8 and 1.7 ratio posted during the previous five weeks.
Dollar volume traded also slipped the week ending April 3. There were $1.330 billion buy trades for the week compared to the $1.666 billion buy trades for the week before. Sell trades also slipped to $788 million from the previous week’s $982 million sell trades.
The ratio of buy trades to sell trades in dollar amount came in on par with previous weeks at 1.7.
Through Thursday, yields on the 10-year Municipal Market Data triple-A GO scale plunged 11 basis points to 1.80% while the 30-year yield dropped six basis points for the week to 3.03%. The two-year was steady at 0.31%.
Yields on the 10-year Municipal Market Advisors 5% coupon triple-A benchmark scale ended eight basis points lower through Thursday to 1.88%. The 30-year yield slid five basis points to 3.14%. The two-year was steady for the week at 0.33%.
Treasuries were much stronger for the week through Friday afternoon. The benchmark 10-year yield dropped 16 basis points to 1.69% and the 30-year yield plunged 26 basis points to 2.85%. The two-year yield slid two basis points for the week to 0.23%.