The municipal market was firmer Thursday after three days of weakness, with particular strength on the long end of the curve, as market participants ride an unusually heavy tide of issuance.
“We’re seeing some nice gains on the long end,” a trader in Los Angeles said. “Inside of 20 years or so, we’re maybe two or three basis points better, but past 25 years, we’re five, six, maybe seven basis points better. There’s a lot of bargain hunting on the long end going on.”
The Municipal Market Data triple-A 10-year scale declined two basis points Thursday from its 18-month high to 3.25%, the 20-year scale decreased three basis points from its 21-month high to 4.49%, and the scale for 30-year debt fell seven basis points from its 21-month high to 4.78%.
Thursday’s gains follow a 14 basis point widening of the 30-year triple-A MMD scale this week. Thirty-year yields climbed 99 basis points during the 44-day period ended Wednesday.
“The BAB program brought in taxable money — it imported demand from another market into the muni market,” said Alex Roever, an analyst with JPMorgan. “Absent that, there would have been a lot more tax-exempt issuance. So if this program sunsets, then that suggests a similar amount of supply shift into the long-term tax-exempt market. That’s why we’ve seen yields back up.”
Taxable bond sales have accounted for more volume in December than tax-exempt debt thus far, according to Thomson Reuters. Through Dec. 15, $14.6 billion of taxable debt has been issued, including $11.4 billion of Build America Bonds, compared with $13.6 billion of tax-exempt issuance.
The $28.5 billion of total issuance recorded so far in December already tops full month issuance for February and April. BAB issuance this month has already exceeded that of every month in 2010 except for March, October, and November.
Thursday’s triple-A muni scale in 10 years was at 93.4% of comparable Treasuries and 30-year munis were at 104.6%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 110.1% of the comparable London Interbank Offered Rate.
The Treasury market showed some gains Thursday. The benchmark 10-year note was quoted near the end of the session at 3.46% after opening at 3.53%. The 30-year bond finished at 4.58%, after opening at 4.59%. The two-year note was quoted near the end of the session at 0.66% after opening at 0.67%.
In the new-issue market Thursday, JPMorgan priced $274.5 million of taxable and tax-exempt debt for Colorado Springs, Colo., including $107.3 million of taxable BABs.
The BABs mature in 2040, yielding 6.615% priced at par, or 4.30% after the 35% federal subsidy. The bonds were priced to yield 200 basis points over the 30-year Treasury yield.
A $48.8 million series of traditional taxable bonds matures from 2011 through 2020, with yields ranging from 1.324% in 2011 to 5.518% in 2020. The bonds were priced to yield between 63 and 160 basis points over the comparable Treasury yields.
A $68.5 million tax-exempt series matures from 2020 through 2028, with yields ranging from 3.92% with a 5% coupon in 2020 to 5.00% priced at par in 2028. The bonds are callable at par in 2020.
A $49.9 million tax-exempt series matures from 2028 through 2030 with a term bond in 2033. Yields range from 5.00% priced at par in 2028 to 5.26% with a 5.25% coupon in 2033. The bonds are callable at par in 2020.
The credit is rated Aa2 by Moody’s Investors Service and AA by both Standard & Poor’s and Fitch Ratings.
JPMorgan priced $196.4 million of single-family housing revenue bonds for the Nebraska Investment Finance Authority.
The bonds mature from 2011 through 2022, with term bonds in 2026, 2031, 2036, 2041, and 2045. Yields range from 0.75% in 2011 to 6.10% in 2045, all priced at par.
The bonds, which are callable at par in 2020, are rated triple-A by Standard & Poor’s.
In economic data released Thursday, initial jobless claims dropped 3,000 to 420,000 for the week ending Dec. 11, matching economists’ expectations for new filings for unemployment benefits.
Continuing claims, a measure of the number of people already receiving jobless benefits, rose 22,000 to 4.135 million for the week ending Dec. 4, exceeding the 4.05 million median estimate from an earlier Thomson Reuters survey of economists.
Initial claims for the week ending Dec. 4 were upwardly revised to 423,000. Continuing claims for the week ending Nov. 27 were revised up to 4.113 million.
November housing starts increased 3.9% to 555,000 as building permits declined 4.0% to 530,000. Economists expected 550,000 housing starts and 560,000 building permits.
October starts were revised upward to 534,000 from 519,000 and building permits were revised up to 552,000 from the 550,000 initially reported.
Philadelphia’s regional manufacturing sector improved in December, as the general business conditions index climbed to 24.3 from 22.5 in November in this month’s Federal Reserve Bank of Philadelphia Report on Business.