The tax-exempt market spent the day catching up to Tuesday’s big rally in Treasuries as muni yields fell throughout the belly of the curve and deals were oversubscribed.
“The market has a firm tone and it’s almost as if munis look to Treasuries and the longer the rates are down, the firmer the market goes,” said a trader in Los Angeles. “There were big adjustments in the 10-year, but overall there was not a lot of activity.” He noted that trading volume was light.
The trader looked at the $31.6 million California-based Fairfield-Suisun Unified School District competitive deal issued Wednesday morning. “We watched that and heard 75% of the deal went right away,” he said.
Yields on the short and long ends were steady, while yields in between fell up to four basis points, according to the Municipal Market Data scale. Credits that saw the biggest drop in yields were in the five- and six-year range.
On Wednesday, the two-year muni yield closed at 0.45% for a 10th consecutive trading session. The 30-year was also unchanged at 3.72%. The 10-year saw a three-basis-point drop to close at 2.39%.
Wednesday, Treasuries pared some of the gains made Tuesday, as yields climbed across the curve. The two-year yield rose four basis points to 0.30%. The 10-year yield rose nine basis points to 2.21% and the 30-year yield jumped 10 basis points to 3.23%.
While falling yields in the tax-exempt market were generally good for the primary market, the secondary market slowed down by Wednesday afternoon.
In the negotiated market, a Minnesota trader said “deals are priced to go” based on the forward supply that’s coming and that “the negotiated product is the cheapest in the market now.”
And indeed, several negotiated deals went well, with reports that the Chicago Transit Authority and the New Jersey Health Care Facilities’ St. Barnabas Health deal were both oversubscribed.
“The heavy new-issue calendar is receiving a generally good reception,” Alan Schankel, managing director at Janney Capital Markets, wrote in a recent report, adding that St. Barnabas Health saw its 30-year deal oversubscribed, “thanks to a yield-seeking market which pushed the final pricing 20 basis points lower.”
In the secondary market, trading slowed a bit by the end of the day. The Minnesota trader said the market was dominated by a few big players, but the “rest of the Street is ignoring what is going on,” adding that “trading is weaker today than it was yesterday.”
A trader in San Francisco agreed, saying the market was slow and “not isolated to our outfit.”
Like Tuesday, the European Union summit hovered over the market Wednesday as traders noted that Europe was the continued driving force in the market.
“Everyone is paying close attention to Europe and that’s the driver,” said a trader in New York. “The secondary underperformed yesterday after the Treasury move and that’s going to continue. Munis need to catch up.”
The trader added people are not concerned about supply as there were enough deals coming to market. “There’s enough to keep any buying pretty much dedicated to the primary, not the secondary.” In the primary market, he said there are about 18 deals that are over $100 million and, while there is not one massive issue, the mere quantity of deals “is taking everyone’s attention.”
The slope of the muni yield curve has steepened during the past week, according to MMD analyst Daniel Berger. The slope reached a high of 162 basis points before the Fed’s Operation Twist was announced, and then dropped to a low of 115 basis points in early October. In the past week, the slope has jumped from 118 basis points to 130 basis points.
In the negotiated market, Wells Fargo priced $480.2 million of Chicago Transit Authority sales tax receipts revenue bonds. The bonds are rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s. Yields ranged from 3.78% with a 5% coupon in 2021 to 4.98% with a 5.25% coupon in 2040. The bonds are callable at par in 2021.
JPMorgan priced for retail $481.2 million of Catholic Healthcare West revenue bonds in two series. The credit is rated A2 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch Ratings.
Yields on the $353.9 million Series 2011A, issued on behalf of the California Health Facilities Financing Authority, ranged from 1.45% with a 3% coupon in 2013 to 4.89% with a 4.75% coupon in 2028. Credits maturing between 2023 and 2027, and 2041, were not available to retail. The bonds are callable at par in 2021.
The $127.3 million Series B, issued on behalf of the Arizona Health Facilities Authority, yielded 5.40% with a 5.375% coupon in 2041. The bonds are callable at par in 2021.
JPMorgan won $400 million of Port Authority of New York and New Jersey revenue bonds in competitive bidding. Pricing was not available by press time.
While domestic economic news was overshadowed by Europe, durable goods orders and new home sales were released Wednesday.
New orders for durable goods fell $1.5 billion, or 0.8%, on a seasonally adjusted basis in September. The drop came after durable goods orders fell a revised 0.1% in August. Excluding transportation, orders rose 1.7% in September after falling a revised 0.4% in August — the largest gain since March, when orders rose 2.6%.
Sales of new single-family homes rose to a seasonally adjusted annual rate of 313,000, a 5.7% gain above the revised August rate of 296,000, the Commerce Department reported.