The municipal market grew firmer Thursday for a third consecutive session as yield-seekers continued to snap up bargains in the secondary, though gains were somewhat muted by weakening Treasuries.
Traders said long tax-exempt yields were lower by two or three basis points amid continued interest from retail, which jumped back into the secondary as 30-year yields approached 5% a week ago.
“Anytime you cross that 5% threshold, you see retail jump back into the market like it’s a pool on a warm summer day,” a New York trader said. “It’s really quite Pavlovian.”
Yields have compressed a bit since the 5% barrier was breached, but the environment is still ripe for yield seekers.
The Municipal Market Data triple-A 10-year and 20-year scales were unchanged Thursday at 3.42% and 4.79%, respectively. The scale for 30-year bonds compressed three basis points to 4.95%.
“The long end firmed up a bit,” a trader in Los Angeles said. “We’re better probably two or three basis points out long, but inside 20 years, you could probably call it unchanged.”
Thursday’s triple-A muni scale in 10 years was at 99.4% of comparable Treasuries and 30-year munis were at 107.6%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 114.3% of the comparable London Interbank Offered Rate.
Treasuries were weaker Thursday. The benchmark 10-year note was quoted near the end of the session at 3.45% after opening at 3.34%. The 30-year bond was quoted near the end of the session at 4.60% after opening at 4.53%. The two-year note was quoted near the end of the session at 0.63% after opening at 0.57%.
Loop Capital Markets priced $299.3 million of taxable GO bonds for Chicago in Thursday’s new-issue market. The bonds mature in 2035, yielding 7.781% priced at par. They were priced to yield 320 basis points over the 30-year Treasury yield and are subject to a make-whole redemption at Treasuries plus 50 basis points.
The credit is rated Aa3 by Moody’s Investors Service, A-plus by Standard & Poor’s, and AA-minus by Fitch Ratings.
Siebert, Brandford, Shank & Co. priced $155.8 million of second series revenue refunding bonds for the San Francisco Airport Commission in two series. Bonds from the $88.4 million series, which are subject to the alternative minimum tax, mature from 2012 through 2019, with yields ranging from 1.57% with a 4% coupon in 2012 to 4.87% with a 5.75% coupon in 2019. The bonds are not callable.
Bonds from the $67.4 million series, which are not subject to the AMT, mature from 2012 through 2021, with yields ranging from 1.07% with a 4% coupon in 2012 to 4.66% with a 5.5% coupon in 2021. The bonds are not callable.
The credit is rated A1 by Moody’s, A by Standard & Poor’s, and A-plus by Fitch.
Piper Jaffray & Co. priced $52.8 million of taxable housing set-aside tax allocation bonds for California’s San Marcos Redevelopment Agency. The bonds mature in 2013, 2014, and from 2018 through 2021, with term bonds in 2026 and 2030.
Yields range from 3.613% with a 3.25% coupon in 2013 to 8.866% with an 8.5% coupon in 2030. The bonds were priced to yield between 300 and 500 basis points over the comparable Treasury yields and are callable at par in 2020.
The credit is rated AA-minus by Standard & Poor’s.
RBC Capital Markets priced $44.3 million of unlimited-tax school building bonds for Texas’ Jacksonville Independent School District. The bonds mature from 2018 through 2030, with term bonds in 2032 and 2035.
Yields range from 3.00% priced at par in 2018 to 5.06% with a 5% coupon in 2035. The bonds are callable at par in 2021.
The deal also contains a component of capital appreciation bonds, which mature from 2014 through 2017. Yields to maturity range from 1.78% in 2014 to 3.08% in 3.08%.
The bonds are backed by Texas’ Permanent School Fund guarantee program. The underlying credit is rated A1 by Moody’s.
In economic data released Thursday, existing home sales surged past economists’ estimates in December, jumping a record 12.3% to a seasonally adjusted annual rate of 5.28 million.
Economists expected a rate of 4.87 million home sales for the month. Home sales in November were revised higher to an annual rate of 4.70 million from an initially reported 4.68 million.
Distressed homes claimed 36% of the market in December, compared with 33% in November.
Total housing inventory at the end of December fell 4.2% to 3.56 million existing homes available for resale.
Initial jobless claims dropped more then economists expected for the week ending Jan. 15, falling by 37,000 new filings to 404,000.
Continuing claims fell by 26,000 to 3.861 million to post a third straight weekly drop. Economists expected 420,000 initial claims and 3.900 million continuing claims, according to the median estimate from Thomson Reuters.
The composite index of leading economic indicators grew 1.0% in December to a level of 112.4. The coincident index grew 0.2% to 101.9 and the lagging index grew 0.3% to 108.4. The LEI has a baseline of 100, which reflects levels from 2004.
Economists polled by Thomson Reuters predicted LEI would be up 0.6% in December.