The tax-exempt market continued to gain for the sixth consecutive trading session, although the rally slowed from earlier in the week.
Deals were received well and some were priced earlier than expected to take advantage of the strong rally.
“It’s more of an underlying good tone,” an Atlanta trader said. “There is interest in bonds from retail to institutions. It has been a big help not to have supply this week. It allows people to get out of their balances. And turnover shows that.”
He said he was not participating in any new issues this week but has seen good subscription on deals. “It’s harder to get bonds you want,” he said. “Anything that was lying around last week is getting cleaned up.”
One New York trader noted that while munis were still positive, activity had slowed from earlier in the week. “Munis are quiet today and nothing great is going on,” the trader said. “Supply of bonds in the street spiked over the last couple days, which is weird. People were looking to sell but weren’t able to.”
Data compiled by Markit showed munis were stronger, but less so than on Tuesday. In a sample of 11 CUSIP numbers on Tuesday, all bonds showed firming. In a sample of eight CUSIPs on Wednesday, two of those were weaker.
“It’s a mixture of trading right now,” an analyst at Markit said. “Before, trading was going one way. It’s still leaning in one direction but more mixed.”
One bond that showed weakening was Minnesota Tobacco Securitization Authority 5s of 2021. The analyst said that was trading lower because of the two other Minnesota deals that were priced in the primary this week.
Still, munis were slightly stronger Wednesday, according to the Municipal Market Data scale. Yields inside two years were steady while yields between three and seven years fell one and two basis points. Outside eight years, yields were flat.
The two-year yield finished steady at 0.36% for its ninth consecutive trading session. The 10-year yield closed flat at 2.08% while the 30-year yield was steady at 3.37%.
Treasuries were mostly flat to slightly weaker Wednesday. The two-year yield and the benchmark 10-year yield each rose one basis point to 0.34% and 2.20%. The 30-year yield closed steady at 3.30%.
In the primary market, Wells Fargo priced for institutions $200 million of Rochester, Minn., Health Care Facilities revenue bonds for the Mayo Clinic. The bonds are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s. Pricing details were not yet available.
Bank of America Merrill Lynch priced $146.3 million of Wisconsin Health and Educational Facilities Authority ministry health care bonds. They are rated A-plus by Standard & Poor’s.
Yields ranged from 0.95% with a 2.5% coupon in 2013 to 4.38% with a 5% coupon in 2032. The bonds are callable at par in 2022.
Barclays priced $143.8 million of Wisconsin general obligation refunding bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 1.46% with a 5% coupon in 2018 to 3.16% with a 5% coupon in 2029. The bonds are callable at par in 2022.
In the competitive market, Wells Fargo won the bid for $226.9 million of Florida State Board of Education public education capital outlay refunding bonds, rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.
Yields ranged from 0.25% with a 5% coupon in 2013 to 2.55% with a 4% coupon in 2023. The bonds are callable at par in 2021.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming over the past week.
A dealer sold to a customer New York Liberty Development Corp. 4s of 2035 at 3.94%, 16 basis points lower than where they traded last week.
A dealer sold to a customer Los Angeles County Metropolitan Transportation Authority 5s of 2018 at 1.47%, 15 basis points lower than where they traded a week before.
A dealer sold to a customer New York Metropolitan Transportation Authority 6.668s of 2039 at 4.90%, 13 basis points lower than where they traded two weeks ago.
A dealer bought from a customer Maryland Health and Higher Educational Facilities Authority 4.25s of 2034 at 4.26%, four basis points lower than where they traded a week prior.
Since munis started strengthening last Wednesday, the ratios of muni yields to Treasury yields have risen as munis underperformed Treasuries and became comparatively cheaper.
Five-year muni yields were at 98% up from 85% on Tuesday. The 30-year ratio increased to 102.1% from 100.3% last Tuesday.
The 10-year muni-to-Treasury ratio fell to 95% from 98.3% when munis started firming last Wednesday as munis outperformed Treasuries and became comparatively more expensive.
The slope of the curve widened to 129 basis points from its 12-month low of 114 basis points last Tuesday before munis started rallying.
After the sharp sell-off two weeks ago and the subsequent stabilization and rally that followed, Anthony Valeri, market strategist at LPL Financial, argues that while buying short-term bonds would help protect against price declines if rates rise again, the intermediate part of the curve may offer the best protection.
Intermediate bonds outperform short-term bonds if yields rise up to 0.5%, but underperform short-term bonds if yields rise more than 0.6%.
