The tax-exempt market ended mixed Wednesday as traders said there were both buyers and sellers in the market.
Some traders noted February coupon payments forced buyers to put money to work, while others said the extremely low yields continue to keep participants out of commission.
“Some people are hitting bids out here and some people are sticking to their offered side,” said a trader in New York.
“It really depends on where you are on the yield curve,” a trader in New Mexico said. “On the short end, we are flat to stronger and on the long end we are weaker.”
Munis seemed confused by the Feb. 1 coupon payments that needed to be put to work and the large number of deals that came to market Wednesday with drifting Treasuries.
“Treasuries are off a little and I still think there is a lot of cash today,” a Chicago trader said. “There is about $25 billion so there is cash still hanging around. If you’re compelled to get in the market as an investor, you get involved. If you’re not compelled, those people start backing away from the table.”
He added that there is trepidation on the part of dealers in terms of building inventories.
“Are you looking to build inventory or not? I think it’s more not,” he said.
Some of the hesitation comes after a fantastic January for munis, where yields were pushed to record lows. “You have to put money away for six years to even get 1%,” the trader said. “So if it’s your money, where do you want to put it? If there is any sort of judgment involved, you’re tapping the brakes on munis a little.”
Munis were mixed, according to the Municipal Market Data scale. Yields inside six years fell two and three basis points. Seven- and eight-year yields fell one basis point while the nine- to 18-year yields were steady. Outside 19 years, yields fell between one and three basis points.
On Wednesday, the two-year MMD yield closed at 0.30%, matching its record low set Aug. 10. The 10-year closed steady at 1.68%, one basis point higher than its low of 1.67% set Jan. 18. The 30-year yield rose three basis points to 3.17%, closing above its record low of 3.14% set Tuesday.
Treasuries weakened Wednesday. The benchmark 10-year yield increased five basis points to 1.85% while the 30-year yield jumped eight basis points to 3.02%. The two-year was steady at 0.23%.
Wednesday was a big day in the primary market. Barclays Capital held preliminary pricing for $195 million of the University of Texas System Board of Regents revenue financing system refunding bonds, rated triple-A by the three rating agencies.
Yields ranged from 0.24% with a 3% coupon in 2013 to 2.36% with a 5% coupon in 2027. The bonds are callable at par in 2022, except for credits maturing in 2022 and 2023.
Bank of America Merrill Lynch priced $150.7 million of Massachusetts State College Building Authority refunding revenue bonds, rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s.
Yields ranged from 1.15% with a 4% coupon in 2018 to 4% at par and 3.44% with a 5% coupon in a split 2043 maturity. Prices were bumped by as much as five basis points on certain maturities at repricing. The debt is callable at par in 2022.
JPMorgan priced for retail $150.4 million of California Department of Veterans Affairs home purchase revenue bonds, rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch Ratings.
Yields ranged from 2.25% at par in 2018 to 3.875% at par in 2028. Portions of debt maturing in 2028 were not offered for retail. The bonds are callable at par in 2021.
On the competitive calendar, B of A Merrill won the bid for $121.3 million of Virginia Transportation Board revenue bonds, rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
Yields on the first series of $84.6 million, ranged from 0.33% with a 5% coupon in 2014 to 2.45% with a 2.50% coupon in 2026. Credits maturing in 2013, 2015 to 2019, and 2027 were sold but not available. The bonds are callable at par in 2022.
Yields on the second series of $36.7 million ranged from 0.20% with a 3% coupon in 2013 to 1.05% with a 2% coupon in 2018. Bonds maturing in 2015 were sold but not available.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board were mixed.
Bonds from an interdealer trade of San Diego Public Facilities Financing Authority 5.25s of 2039 yielded 3.30%, five basis points lower than where they traded Tuesday.
A dealer sold to a customer New Jersey Turnpike Authority 7.102s of 2041 at 4.49%, two basis points lower than where they traded Tuesday.
Bonds from an interdealer trade of New York City Municipal Water Finance Authority 5s of 2045 yielded 3.73%, six basis points higher than where they traded Tuesday. Bonds from an interdealer trade of Jefferson County, Colo., School District 5.64s of 2026 yielded 3.21%, three basis points higher than where they traded Tuesday.
During January, muni-to-Treasury ratios fell as munis outperformed Treasuries and became more expensive. The 10-year ratio fell to 93.3% at the end of January from 96.4% at the beginning of the month. The 30-year ratio fell to 106.8% from 119.4%. The five-year ratio was the exception as ratios rose to 100% from 98.9% at the beginning of the year.
The slope of the yield curve also declined in January. By the end of the month, the 10- to 30-year slope fell to 146 basis points, down from 169 basis points at the beginning of January.