The municipal market was mostly flat Wednesday as the week’s largest deals were priced in the primary.
“The focus was the new issues today,” a trader in New York said. “We were pretty much flat on the whole. There was a bit of a weaker tone early on, but that faded. But with the light calendar we’ve had, people were paying attention to the new issues today.”
The Municipal Market Data triple-A 10-year scale climbed one basis point Tuesday to 3.39%, the 20-year scale rose one basis point to 4.62%, and the scale for 30-year bonds increased three basis points to 4.95%.
Wednesday’s triple-A muni scale in 10 years was at 92.9% of comparable Treasuries and 30-year munis were at 105.1% according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 111.5% of the comparable London Interbank Offered Rate.
Treasuries showed gains Wednesday. The benchmark 10-year note finished at 3.66% after opening at 3.73%. The 30-year bond finished at 4.71% after opening at 4.77%. The two-year note finished at 0.81% after opening at 0.85%.
In the daily MMD commentary, Randy Smolik wrote “two nemeses of the muni market, questionable street support of a front-loaded South Carolina loan and weakening Treasuries, have faded from concern. Underwriters competing for a thinning primary calendar this year paid firm levels for” the South Carolina offering.
The state competitively sold $323.5 million of refunding bonds to JPMorgan in two series, with a true interest cost of 1.62%.
Bonds from the $197.2 million series mature from 2012 through 2017, with yields ranging from 0.75% with a 5% coupon in 2013 to 2.24% with a 5% coupon in 2017. Bonds maturing in 2012 were not formally re-offered. The bonds are not callable.
Bonds from the $126.3 million series mature from 2012 through 2018, with yields ranging from 0.75% with a 5% coupon in 2013 to 2.57% with a 5% coupon in 2018. Bonds maturing in 2012 were not formally re-offered. The bonds are not callable.
The credit is rated Aaa by Moody’s Investors Service, AA-plus by Standard & Poor’s, and AAA by Fitch Ratings.
Also in Wednesday’s new-issue market, Bank of America Merrill Lynch priced $325.2 million of public improvement refunding bonds for Puerto Rico, upsized from an originally planned $85 million.
The bonds mature in 2024, 2025, 2027, 2028, 2033, 2034, and 2040. Yields range from 5.50% with a 5.25% coupon in 2024 to 6.27% with a 6.5% coupon. The bonds are callable at par in 2021, except bonds maturing in 2033, which are callable at par in 2016.
Bonds maturing in 2024 and 2025 and portions of bonds maturing in 2033 are insured by Assured Guaranty Municipal Corp.
The remaining bonds were uninsured. The underlying credit is rated A3 by Moody’s, BBB-minus by Standard & Poor’s, and BBB-plus by Fitch.
“We’ve had very light supply and a very thin market,” said Adam Mackey, managing director of municipal fixed income at PNC Capital Advisors. “I certainly think there is a calm before the storm right now, where there’s no depth and the market’s just trading really thin.”
Trades reported by the Municipal Securities Rulemaking Board Wednesday showed little movement. A dealer sold to a customer taxable New Jersey Turnpike Authority Build America Bond 7.102s of 2041 at 6.82%, even with where they were sold Tuesday. A dealer bought from a customer Maryland 5s of 2022 at 3.42%, even with where they traded Tuesday. A dealer bought from a customer Long Island Power Authority 5.5s of 2033 at 5.29%, even with where they were sold Tuesday.
In a research note, BondDesk Group wrote that, though retail investors in the mutual fund market have pulled money out of munis in droves over the past few months, the buy-sell ratio for munis in January was 2.6, which “indicates that there are substantially more individual buyers than sellers of municipal bonds, which makes sense because many municipal owners are buy and hold investors.”
The report also notes that “the past three months have been a remarkably active period for the retail market for municipal bonds.
Following a year of relative calm, yields and trade volumes started surging in November and continued through December and January.”
In total, January saw 403,218 buys as opposed to 154,061 sells, producing the 2.6 ratio. This is considerably higher than the ratio in the corporate bond market, which was 1.2 in January, according to the report.
Elsewhere in the new-issue market Wednesday, Barclays Capital priced $104.2 million of GO debt for the Port of Seattle.
Bonds from the $30.2 million taxable component mature in 2014 and 2015, yielding 2.254% and 3.068%, respectively. The bonds were priced to yield 90 and 75 basis points over the comparable Treasury yield.
Bonds maturing in 2014 contain a make-whole call at Treasuries plus 15 basis points.
Bonds maturing in 2015 contain a make-whole call at Treasuries plus 15 basis points prior to June 2014, at which point they become callable at par.
Bonds from the $74 million series of limited-tax refunding debt, subject to the alternative-minimum tax, mature from 2011 through 2025, with yields ranging from 1.30% with a 4% coupon in 2012 to 5.11% with a 5.75% coupon in 2025. Bonds maturing in 2011 were decided via sealed bid. The bonds are callable at par in 2021.
The credit is rated Aa1 by Moody’s and AAA by Standard & Poor’s and Fitch.
Raymond James & Associates priced $82.4 million of unlimited-tax school building bonds for Texas’ Conroe Independent School District.
The bonds mature from 2012 through 2031, with term bonds in 2033 and 2035. Yields range from 0.47% with a 2% coupon in 2012 to 5.07% with a 5% coupon in 2035.
The bonds, which are callable at par in 2020, are backed by the Texas Permanent School Fund guarantee program. The underlying credit is rated Aa2 by Moody’s and AA by Standard & Poor’s.