The municipal market was slightly weaker yesterday amid light to moderate secondary trading activity.
“We’re a bit weaker again,” a trader in New York said. “I’m actually seeing the weakness spread a little bit out to the long end, though. We’ve had this continuing short-end weakness, and even out to the intermediate part of the curve, over the last week or two, but the long end has been pretty much flat. Now I’m seeing things maybe a basis point or two cheaper out long. We’re probably down one or two basis points across the board.”
“There’s been some more cheapening,” a trader in San Francisco said. “It’s been more so on the short end than anything else, maybe three or so basis points inside of five years, but still a good two or three basis points weaker through the rest of the curve. Maybe on the long end it’s only about one or so. But there’s decent activity, decent trading going on.”
The Treasury market showed some gains yesterday. The benchmark 10-year note finished with a yield of 3.96% after opening at 3.98%. The yield on the two-year finished at 1.15% after opening at 1.17%. The yield on the 30-year bond finished at 4.83% after opening at 4.84%.
The Municipal Market Data triple-A scale yielded 3.14% in 10 years and 3.84% in 20 years yesterday, compared with Monday’s levels of 3.11% and 3.84%. The scale yielded 4.17% in 30 years yesterday, matching Monday.
Monday’s triple-A muni scale in 10 years was at 77.8% of comparable Treasuries and 30-year munis were at 86.0%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 89.9% of the comparable London Interbank Offered Rate.
In the new-issue market yesterday, Illinois competitively sold $356 million of taxable GOs to JPMorgan in two series, including $300 million of Build America Bonds.
The BABs mature from 2011 through 2030, with a term bond in 2035. Yields range from 3.00% priced at par in 2013, or 1.95% after the 35% federal subsidy, to 6.90% priced at par in 2035, or 4.49% after the subsidy. The bonds were priced to yield between 115 and 230 basis points over the comparable Treasury yields.
The deal also contained a $56 million taxable series, which matures from 2011 through 2030, with a term bond in 2035. Yields range from 3.00% priced at par in 2013 to 6.90% priced at par in 2035. The bonds were priced to yield between 115 and 230 basis points over the comparable Treasury yields.
The bonds are rated A2 by Moody’s Investors Service, A-plus by Standard & Poor’s, and A-minus by Fitch Ratings.
Bank of America Merrill Lynch priced $71.4 million of taxable BABs for the Orlando, Fla., Redevelopment Agency.
The bonds mature from 2019 through 2025, with term bonds in 2030 and 2040. Yields range from 6.21% in 2019, or 4.04% after the 35% federal subsidy, to 7.78% in 2040, or 5.06% after the subsidy. The bonds were priced to yield between 225 and 325 basis points over the comparable Treasury yields.
The bonds, which are callable at par in 2020, are rated A2 by Moody’s and A by both Standard & Poor’s and Fitch.
Montgomery County, Md., competitively sold $30.4 million of taxable limited obligation certificates to Robert W. Baird & Co. with a true interest cost of 5.28%.
The bonds mature from 2011 through 2030, with coupons ranging from 4% to 5.9%. None of the bonds were formally re-offered.
The bonds, which are callable at par in 2020, are rated Aa1 by Moody’s, AA-plus by Standard & Poor’s, and AA by Fitch.
In a weekly report, George Friedlander, municipal strategist at Morgan Stanley Smith Barney, wrote: “Yields in the municipal bond market have moved significantly higher since roughly mid-March, except on very short paper and on the long end.”
“The limited move on very short paper results from the near-zero yields on tax-exempt money market funds and other near-cash, which has created a very strong appetite for short-maturity fixed-rate munis,” he wrote. “Limits on the yield increase on paper outside the 15-year range results from the fact that issuers have an alternative in BABs that pushes more issuance to the taxable market when and if muni yields increase relative to corporate bond yields.”
“The latter serve as a benchmark for buyers of BABs, so that to the extent munis underperform corporates, more potential tax-exempt supply moves over into the BABs market,” Friedlander wrote. “In addition, since BABs have dominated issuance outside the 15-year range for nearly a year, there is a shortage of long-term tax-exempt paper available to muni investors, except in the two key sectors that do not qualify for BABs issuance: hospital bonds, and refundings of tax-exempt issues.”
Trades reported by the Municipal Securities Rulemaking Board yesterday were mostly weaker. Bonds from an interdealer trade of taxable California BABs 7.5s of 2034 yielded 7.50%, one basis point higher than where they traded Monday. A dealer sold to a customer King County, Wash., 5.25s of 2023 at 3.65%, up two basis points from where they were sold Monday.
A dealer bought from a customer taxable New Jersey Turnpike Authority BABs 7.41s of 2040 at 6.64%, up one basis point from where they were sold Monday. Bonds from an interdealer trade of taxable New York State BABs 5.985s of 2036 yielded 6.17%, up two basis points from where they traded Monday.
A dealer bought from a customer Puerto Rico 5.25s of 2026 at 5.46%, one basis point higher than where they were sold Monday. A dealer sold to a customer Dormitory Authority of the State of New York 5s of 2026 at 3.99%, even with where they were sold Monday. Bonds from an interdealer trade of insured Portland, Ore., 5s of 2023 yielded 3.89%, one basis point higher than where they were sold Monday. Bonds from an interdealer trade of taxable Municipal Electric Authority of Georgia BABs 6.655s of 2057 yielded 6.82%, three basis points higher than where they were sold Monday.
A dealer sold to a customer California Housing Finance Agency 4.875s of 2041 at 6.00%, even with where they were sold Monday. Bonds from an interdealer trade of Cuyahoga County, Ohio, 5s of 2023 yielded 3.41%, one basis point higher than where they were sold Monday.