After two days of quiet activity with yields in the tax-exempt market mostly flat, munis picked up the pace Wednesday.
Traders noted the secondary market was much more active than earlier in the week, even as the primary continued to receive a lot of attention.
“It’s busier,” a New York trader said. “People are buying munis.”
“It’s slightly firmer today,” a New Jersey trader said. “The scale is expected to be pretty unchanged for the day. Treasuries are up a little so we’re not seeing anything necessarily pick up in the market, but it’s fairly stable.”
In terms of new deals, the trader said the New Jersey Garden State Preservation Trust offering is successful. “It’s hard to say this early on, but it appears to be going well,” he said. “We are seeing business. It will wrap up this afternoon, but my suspicion is it’s going OK.”
Munis had a much stronger tone Wednesday, according to the Municipal Market Data scale. The two- and three-year yields fell two basis points, while the four- to six-year yields fell one basis point. Outside seven years, yields fell up to three basis points.
On Wednesday, the two-year yield fell two basis points to 0.31% after holding steady at 0.33% for seven consecutive trading sessions. The 10-year yield fell three basis points to 1.92%, while the 30-year yield dropped one basis point to 3.30%.
Treasuries climbed higher. The two-year yield fell one basis point to 0.27%, while the 30-year yield dropped two basis points to 3.13%. The benchmark 10-year yield fell three basis points to 1.98%.
In the primary market, Morgan Stanley repriced $346.7 million of Ascension Health Alliance senior credit group revenue bonds, rated Aa1 by Moody’s Investors Service, and AA-plus by Standard & Poor’s and Fitch Ratings.
Yields on the first series, $128.7 million of Illinois Finance Authority revenue bonds, ranged from 2.11% with a 5% coupon in 2019 to 4.11% with a 5% coupon in 2042. The bonds are callable at par in 2021. Yields were lowered up to two basis points from preliminary pricing.
Bonds in the second series, $86 million of Maryland Health and Higher Educational Facilities Authority revenue bonds, yielded 4.11% with a 5% coupon in 2051. The bonds are callable at par in 2021.
Bonds in the third series, $43.9 million of Rutherford County, Tenn., Health and Educational Facilities Board bonds, yielded 4.16%, with a 5% coupon in 2047. The bonds are callable at par in 2021. The yield was lowered five basis points from preliminary pricing.
Bonds in the fourth series, $88.1 million of Wisconsin Health and Educational Facilities Authority bonds, yielded 4.05% with a 5% coupon in 2041. The bonds are callable at par in 2021.
Wells Fargo Securities priced $284.7 million of Garden State Preservation Trust open space and farmland preservation refunding bonds, rated Aa3 by Moody’s and AA-minus by Fitch.
Yields ranged from 0.35% with a 2% coupon in 2013 to 2.46% with a 4% coupon and 2.39% with a 5% coupon in a split 2023 maturity. The bonds are callable at par in 2022.
Morgan Stanley priced $170.7 million of Pennsylvania Industrial Development Authority economic development revenue refunding bonds, rated A1 by Moody’s, A-minus by Standard & Poor’s, and A by Fitch.
Yields ranged from 1.04% with a 4% coupon in 2014 to 2.85% with a 5% coupon in 2021. Credits maturing in 2013 were offered via sealed bid.
In the competitive market, Milwaukee auctioned $219 million of general obligation securities in three pricings. The first two consist of $109.4 million and $9.63 million rated Aa2 by Moody’s and AA by Standard & Poor’s. The third pricing consists of $100 million of short-term notes rated MIG-1 by Moody’s and SP-1-plus by Standard & Poor’s.
JPMorgan won the bid for $109.4 million. The bonds had maturities ranging from 2013 with a 3% coupon to 2022 with a 5% coupon. Prices were not formally re-offered.
BMO Capital Markets won the bid for $9.63 million. Yields ranged from 0.50% with a 4% coupon in 2013 to 4.00% with a 4% coupon in 2032. The bonds are callable at par in 2022.
Of the $100 million of short-term promissory notes, JPMorgan won the bid for $40 million. The notes yielded 0.14% with a 3% coupon. Bank of America Merrill Lynch won the bid for two sets of $30 million — each yielding 0.13% and 0.14% with 1.25% coupons.
Munis also had a much stronger tone in the secondary market, according to data compiled by Markit. Out of seven CUSIP numbers, all were stronger with yields falling between one and 24 basis points.
Yields on Columbus, Ohio, 5s of 2018 fell one basis point to 1.18% while Connecticut 5s of 2024 dropped one basis point to 2.51%. Yields on California 5.25s of 2030 fell one basis point to 3.81% while Honolulu city and county 5s of 2026 also fell one basis point to 2.75%.
The bigger drop in yields were seen in Arizona Board of Regents 5s of 2024 and Abilene, Texas, Independent School District 5s of 2021, which each fell six basis points to 2.81% and 1.90%, respectively. Yields on New York City Transitional Finance Authority 5s of 2021 plummeted 24 basis points to 2.01%.
So far this week, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became relatively more expensive.
The five-year muni yield to Treasury yield fell to 101.2% from 102.4% last Friday. The 10-year ratio fell to 97% from 99% at the end of last week. The 30-year ratio dropped to 104.7% from 105.4%.
Meanwhile, the slope of the yield curve has fallen to 311 basis points from 312 basis points last Friday as investors move further out on the yield curve.
But the 10- to 30-year slope of the curve rose slightly to 136 basis points from 135 basis points last Friday.
Spreads on the triple-A to single-A yields show throughout April, investors were more comfortable going down the credit scale on short end, but favored higher-rated bonds on the long end.
The five-year triple-A to single-A spread fell to 65 basis points from 67 basis points at the beginning of April.
But the 10-year and 30-year spreads between the triple-A and single-A yields each rose to 79 basis points from 78 basis points at the beginning of the month.
