Around $4 billion in volume barreled into a weathered municipal market filled with willing yet subdued buyers who absorbed Wednesday’s deals, though at incrementally widening spreads.
Most of the paper, hailing from issuers in California and New York, exchanged hands at slightly lowered prices, traders said. But it cleared. Consequently, the market felt a little weaker. But only a little.
Tax-exempt yields rose by a basis point or two beyond the front end of the curve, according to one market estimate. Institutional investors, in particular showed a mild reluctance, a trader in San Francisco said.
“Institutional buyers are willing to buy good names at wider spreads than they have for the last six months, but they’re not buying them with both hands and both feet like before,” he said. “And that’s leaving some balances, forcing some repricings to higher yields.”
The week’s largest deals from New York issuers are getting done with adjustments, the trader said. And the second day of retail for $2.16 billion of California general obligation bonds, which yielded around $600 million in sales, he added, should also find a way to clear.
“The market’s under pressure, but business is getting done,” he said. “And the selloff is somewhat orderly.”
California GOs headline the week’s volume. JPMorgan held a second day of retail for $2.16 billion of California various purpose GOs Wednesday. The bonds are rated A1 by Moody’s Investors Service, A by Standard & Poor’s, and A-minus by Fitch Ratings. Institutional pricing should follow Thursday.
Yields on the first series, $1.06 billion of various purpose GOs, ranged from 1.19% with coupons of 2.00% and 4.00% in a split maturity in 2018 to 4% priced at par in 2043. Bonds maturing in 2014 were offered via sealed bid. Portions of bonds maturing between 2017 and 2043 were not offered for retail. The bonds are callable at par in 2023. Yields in the series were raised two basis points at the short end from the first day of retail.
Yields on the second series, $1.10 billion of various purpose GO refunding bonds, ranged from 1.19% with a 5.00% coupon in 2018 to 3.69% with a 4% coupon and 3.39% with a 5% coupon in a split 2033 maturity. Bonds maturing between 2014 and 2016 were offered via sealed bid. Bonds maturing between 2027 and 2032 were not offered for retail. The bonds are callable at par in 2023. Yields in the series were raised two basis points at the short end and one basis point at the long end from the first day of retail.
Goldman, Sachs & Co. priced $364.2 million of California federally taxable GOs. The bonds yield 0.64% with a 0.85% coupon in 2015 and 0.93% with a 1.05% coupon in 2016. Spreads were 38 and 53 basis points above the comparable Treasury yield.
Goldman also priced a remarketing of $228 million of taxable California Build America Bonds for stem cell research and cures. The bonds have a 4.99% coupon in 2039 with a 175 basis point spread above the comparable Treasury.
Wells Fargo Securities priced $643.1 million of Empire State Development Corporation, N.Y., Urban Development Corporation personal income tax revenue bonds in two series. The bond are rated triple-A by Standard & Poor’s and AA by Fitch.
Yields in the first series, $573 million of New York state PIT revenue bonds, ranged from 1.36% with a 4.00% coupon in 2019 to 3.54% with a 5.00% coupon in 2043.
The bonds are callable at par in 2023. However, yields were lowered up to three basis points in the intermediate part of the curve at repricing.
Yields in the second series, $70.1 million of New York state PIT revenue bonds, ranged from 0.18% with a 2.00% coupon in 2014 to 2.75% with a 5.00% coupon in 2026. The bonds are callable at par in 2023. Yields were lowered two basis points in maturities around 10 years, and five points at the long end of the curve.
The municipal bond market has been weakening by slow accretion for roughly a month, particularly at the long end of the yield curve. This week’s heavier issuance has kept muni participants busy and pushed up yields incrementally, traders say, but has not otherwise overwhelmed the market.
“It’s been the same thing it’s been for like a month,” a trader who covers the southwestern region said. “It’s a few basis points cheaper a day, every day. You look up at the end of the week and you’re down 15.”
This holds true for retail paper with 3.00% coupons, in particular, he added. The secondary market has been reeling.
“The secondary’s had enough,” the trader said. “You’re starting to see stuff that came a month ago off 30 basis points. That’s the problem. The market’s always bounced back from these pullbacks; this one seems like it’s really dragging on.”
Tax-exempt yields Wednesday were unchanged through seven years, and at 10 and 11 years, according to the Municipal Market Data triple-A GO scale read. They were up to two basis points higher everywhere else on the curve.
The 30-year yield rose two basis points to 3.11% Wednesday. The 10-year closed steady at 1.99% while the two-year finished flat at 0.31% for the 17th consecutive session.
Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale mostly rose. The 10-year yield and the 30-year yield inched up one and two basis points, respectively, to 2.01% and 3.18%. The two-year held at 0.33% for the 12th session.
Treasuries finished Wednesday where they started. They weakened slightly beyond the front end of the curve throughout much of the day, only to close flat. The benchmark 10-year yield and the 30-year yield each held at 2.03% and 3.22%, respectively. The two-year yield remained at 0.27%.