The tax-exempt market slipped lower Thursday for the fifth consecutive session, following Treasuries. Limited supply failed to provide direction for munis so bond prices fell on positive reports that Greece is closer to receiving a bailout to avoid default and positive news from the United States that unemployment claims fell.
“I think we’re weaker again today,” a Philadelphia trader said. “We’ve been weaker all week.”
The Municipal Market Data scale has been cut one to three basis points Thursday after earlier cuts this week, and the scale has still not been cut enough, he said. “I still think they are behind,” the trader said. “There is not a lot of supply to price the market this week and deals that have been out there are slow.”
Goldman, Sachs & Co. priced a $276.5 million Shelby County, Tenn., deal earlier this week that “was hung up a little,” the trader said. “First Southwest did a $100 million deal and it was hung up in the 15-year range.”
“So in the belly of the curve, there is more cutting to do,” he said. “Munis will sell off to catch up once Treasuries slow down. It seems much more of the same. Inside five years, there is no cutting because there is so much demand there. But outside five years, there will definitely be more cutting this week and next week.”
Another trader said activity was up Thursday compared to earlier in the week. “It’s a little busier,” a New York trader said Thursday morning.
Munis weakened for the fifth consecutive day Thursday, according to the MMD scale, erasing gains made since Jan. 25. Yields inside four years were unchanged while yields on the five- and six-year rose two and one basis points, respectively. The seven-year yield was steady while yields outside eight years were cut between one and four basis points.
On Thursday, the two-year held steady at 0.29%, its record low as recorded by MMD on Tuesday. The previous record of 0.30% was set Aug. 10. The 10-year yield rose two basis point to 1.87% while the 30-year yield jumped four basis points to 3.29%.
Since munis started weakening last Friday, the 10-year yield has jumped 18 basis points and the 30-year yield has risen 15 basis points.
Treasuries weakened throughout Thursday. The two-year yield rose two basis points to 0.28%. The benchmark 10-year yield jumped six basis points to 2.04% and the 30-year yield rose five basis points to 3.19%.
In the primary market, Barclays Capital priced $139.1 million of University of North Carolina at Charlotte general revenue bonds, rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s.
Yields on the first series, $102.2 million of general revenue bonds, ranged from 0.28% with a 2% coupon in 2013 to 3.84% with a 3.75% coupon and 3.59% with a 5% coupon in a split 2041 maturity. The bonds are callable at par in 2022.
Bonds on the second series, $36.9 million of taxable general revenue bonds, matured between 2014 and 2041. The credits were priced to yield 35 basis points to 165 basis points above the comparable Treasury yield.
The bonds are callable at par in 2022 except for credits maturing in 2041. Those maturities are callable at par in 2015.
In the competitive market, Citi won the bid for $85.1 million of Frederick County, Md., general obligation public facilities refunding bonds, rated Aa1 by Moody’s, AA-plus by S&P and AAA by Fitch Ratings.
Yields ranged from 0.30% with a 2% coupon in 2014 to 1.88% with a 4% coupon in 2022. Credits maturing in 2023 and 2024 were not formally reoffered.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening. Bonds from an interdealer trade of San Diego Community College District 5.25s of 2033 yielded 2.91%, 11 basis points higher than where they traded Wednesday.
A dealer sold to a customer Long Island Power Authority 5s of 2038 at 4.07%, seven basis points higher than where they traded Wednesday. Another dealer sold to a customer New York City Municipal Water Finance Authority 5s of 2045 at 3.87%, four basis points higher than where they traded Wednesday.
Since municipals began weakening last Friday, muni-to-Treasury ratios have risen on the long end as munis underperformed and became cheaper. The 10-year ratio increased to 93.9% on Wednesday from 90.8% last Friday. The 30-year ratio rose to 103.5% from 102.2% Friday. The five-year ratio reversed, falling to 85.4% on Wednesday from 87.2% on Friday.
Since the beginning of the year, all ratios have dropped. The five-year muni-to-Treasury ratio started the year at 98.9% while the 30-year ratio began at 119.4%. The 10-year ratio opened the year at 96.4%.
The slope of the yield curve continues to flatten. The 10- to 30-year slope fell to 140 basis points from 145 basis points on Friday. Since the start of the year, the sloped has flattened from 169 basis points.