Munis Sink; 10-Year Rises 31 BPs in Week

The tax-exempt market weakened for the sixth consecutive trading session by looming supply in the pipeline this week and leftover supply from previous weeks. Most traders agreed the supply and demand imbalance may not go away any time soon.

“We are seeing cuts today but activity is quiet,” a Los Angeles trader said. “The tone is negative and it just seems like we continue to drift down and there is not a lot of strength.”

He added that California traders are looking ahead to the almost $1 billion California State Public Works Board deal and “we will see how that’s received by the market.”

“There is big supply coming,” according to a New York trader. “It’s the same old story.”

Munis were several basis points weaker Tuesday, according to the Municipal Market Data scale. Yields inside three years were steady while yields between the four- and 10-year jumped five basis points. The 11- to 16-year yields rose four basis points while the 17-year yield increased three basis points. Yields outside 18 years rose one and two basis points.

On Tuesday, the two-year yield finished steady at 0.36%. The 10-year yield jumped five basis points to 2.33% while the 30-year yield increased one basis point to 3.47%.

Since munis started weakening last Tuesday, the two-year yield has jumped nine basis points while the 30-year yield has increased 18 basis points. The 10-year yield has been hit the hardest, rising 31 basis points. The two-year yield has not been this high since Jan. 11, while the 30-year yield hasn’t risen to this level since Jan. 9. The 10-year muni hadn’t seen these levels since Nov. 16, 2011.

By Tuesday’s close, Treasuries had pared most of the gains made in the morning. The two-year was steady at 0.40%. The benchmark 10-year yield fell one basis point to 2.37%, while the 30-year yield dropped three basis points to 3.46%.

In the primary market, JPMorgan priced $442.9 million of Ohio general obligation bonds in three parts, rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.

Yields on the first series, $300 million of higher education GOs, ranged from 0.56% with 2% and 5% coupons in a split 2014 maturity to 3.78% with a 4.5% coupon in 2032. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2021.

Yields on the second series, $102.7 million of higher education GO refunding bonds, ranged from 1.14% with a 5% coupon in 2016 to 2.90% with a 5% coupon in 2023. The bonds are callable at par in 2022.

Yields on the third series, $40.2 million of infrastructure improvement GO refunding bonds, ranged from 1.14% with a 5% coupon in 2016 to 2.58% with a 5% coupon in 2021.

Morgan Stanley repriced $343.6 million of Wisconsin transportation revenue bonds, rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Yields ranged from 0.54% with 4% and 5% coupons in a split 2014 maturity to 3.49% with a 5% coupon in 2032. Credits maturing in 2013 were not reoffered. The bonds are callable at par in 2022. Yields were lowered three to five basis points from preliminary pricing.

Morgan Stanley also priced $277.9 million of New York Metropolitan Transportation Authority dedicated tax fund bonds in two series.

Bonds on the first series, $116.1 million, yielded 0.64% with a 3% coupon in 2014, 0.89% with 4% and 5% coupons in a split 2015 maturity, and 1.14% with a 5% coupon in 2016. Yields were lowered between three and five basis points in repricing.

Pricing details were not available for $161.8 million of bonds in the second series.

In the competitive market, New York City auctioned $470 million of GOs, a $100 million deal followed by a $370 million issue. The bonds are rated AA by Standard & Poor’s.

JPMorgan won the bid for $100 million of taxable bonds. Yields ranged from 0.55% in 2014 to 2.65% in 2020. The bonds were priced 25 basis points to 90 basis points above the comparable Treasury spread.

Wells Fargo won the bid for $370 million. Yields ranged from 0.55% with a 5% coupon in 2014 to 3.40% with a 5% coupon in 2029. The bonds are callable at par in 2022.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed weakening over the past few weeks.

A customer bought from a dealer Catholic Healthcare West California Health Facilities Financing Authority 5.25s of 2027 at 4.05%, 13 basis points higher than where they traded last Friday. A customer sold to a dealer Puerto Rico Sales Tax Financing Corp. 4.75s of 2039 at 4.33%, eight basis points higher than where they traded earlier in the month.

A customer sold to a dealer Dormitory Authority of the State of New York 5s of 2023 at 3.05%, 51 basis points higher than where they traded in February. A customer bought from a dealer Georgia 5s of 2018 at 0.80%, 25 basis points higher than where they traded a month before.

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