The tax-exempt market ended steady Tuesday, defying weaker Treasuries, as the secondary market showed mixed trades and the primary failed to move the market in either direction.
To be sure, many primary deals have accelerated institutional pricing by a day to take advantage of interest and the stronger tone in the market.
“It’s real quiet today,” a Texas trader said. “Retail is not tremendously involved in the secondary. It’s mostly flat.”
There was a little activity with kicker bonds. “It’s a good way to reach for yield without taking on extra risk,” he said.
Others agreed that activity was muted.
“Munis are flat,” a New York trader said.
Munis were unchanged Tuesday, according to the Municipal Market Data scale. The two-year yield closed at 0.31% for the fifth consecutive trading session. The 10-year yield and the 30-year yield each closed unchanged at 1.85% and 3.25%.
Munis held steady, even as Treasuries weakened. The benchmark 10-year yield and the 30-year yield each rose four basis points, to 1.97% and 3.12%. The two-year increased one basis point to 0.28%.
Munis told a different story in the secondary market. Munis were mixed, according to data compiled by Markit, and out of a sample of five CUSIPs supplied by the data provider, three were weaker by one basis point.
Yields on Massachusetts 5s of 2023 rose one basis point to 2.29% while University of Texas 5s of 2023 rose one basis point to 2.23%. Yields on Martin County, Fla., Health Facilities Authority 5.5s of 2032 also increased one basis point to 4.72%.
Other bonds were much stronger, including yields on Wisconsin 5s of 2022, which fell four basis points to 2.20%, and yields on New Jersey 5s of 2019, which dropped eight basis points to 1.58%.
Also in the secondary market, trades reported by the Municipal Securities Rulemaking Board mostly showed weakening over the past few trading sessions.
A dealer sold to a customer Milwaukee 4s of 2014 at 0.48%, 13 basis points higher than where they traded last Thursday. A dealer sold to a customer Florida 2.25s of 2022 at 2.50%, eight basis points higher than where they traded Friday.
A dealer sold to a customer Washington 4s of 2031 at 3.52%, two basis points higher than where they traded Monday. A dealer sold to a customer New York 5.59s of 2035 at 4.22%, one basis point higher than where they traded Monday.
In the primary market, deals seemed to be seeing interest. JPMorgan priced for retail $464.2 million of Ohio hospital revenue bonds for the Cleveland Clinic Health System, rated Aa2 by Moody’s Investors Service and AA-minus by Standard & Poor’s. Institutional pricing is expected Wednesday. Pricing information was not available by press time.
Jefferies & Co. priced $371.4 million of Houston taxable and tax-exempt public improvement refunding bonds in two pricings, rated AA by Standard & Poor’s and Fitch Ratings.
Yields in the first pricing, $269.7 million of tax-exempt bonds, ranged from 1.02% with 4% and 5% coupons in a split 2017 maturity to 4.036% with a 4% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered up to six basis points from preliminary pricing.
Yields on the second pricing, $101.7 million of taxable credits, ranged from 0.57% priced at par in 2014 to 1.803% priced at par in 2018. Credits maturing in 2013 were not formally reoffered. The credits were priced 30 basis points to 60 basis points above the comparable Treasury yield.
In the competitive market, New Jersey Economic Development Authority auctioned $447.4 million of revenue bonds in two pricings, a $412.8 million deal followed by a $34.6 million issue. The authority is rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Bank of America Merrill Lynch won the bid for $412.8 million. Yields ranged from 2.21% with a 5% coupon in 2020 to 2.77% with a 5% coupon in 2023. Bonds maturing between 2015 and 2019 and between 2024 and 2027 were sold but not available. The credits are callable at par in 2022.
JPMorgan bought the $34.6 million taxable deal. The bonds mature in 2014 and were priced 20 basis points above the comparable Treasury yield.
JPMorgan won the bid for $147.6 million of triple-A rated Raleigh, N.C., GOs. Yields on both series, $9 million and $138.6 million of public improvement bonds, ranged from 0.31% with a 2% coupon in 2014 to 3.20% with a 3.125% coupon in 2032. Credits maturing in 2013, 2016, 2018, between 2023 and 2026, and in 2029 and 2031 were not formally reoffered. The bonds are callable at par in 2022.
With several hospital deals on the calendar this week, MMD’s Daniel Berger noted spreads between triple-A and single-A 10-year hospital bonds have compressed.
The 10-year single-A rated hospital bond spread finished at 133 basis points over the MMD triple-A scale, much lower than the 12-month average of 158.5 basis points.
“Should this spread revert back to the mean, hospital bond investors will underperform,” Berger noted. “Once again, we caution about these dangerously low spread levels.”
As the end of April approaches, it is apparent that muni-to-Treasury ratios have mostly increased during the month as munis underperformed and became comparatively cheaper.
The five-year muni yield to Treasury yield ratio jumped to 100% from 96.1% on the first trading day of April. The 30-year ratio increased to 105.5% from 101.5% at the beginning of the month.
The 10-year ratio was the anomaly, falling slightly to 95.9% from 96.8% at the start of the month.