The municipal market underperformed slightly in Wednesday’s session as underwriters pushed through a second day of heavy volume before the coming holiday weekend.
The new issuance saw concessions in yields on larger deals, but strong interest on smaller, lower-investment-grade paper. Tax-exempt yields mostly hovered at Tuesday’s levels, with the exception of the outer belly of the yield curve.
As yields remained near historic lows, cash-full investors seemed anxious about the uptick in volume, a trader in Chicago said.
“As we’ve seen over the last year or so, anytime the calendar gets up toward $11 billion, people get worked up,” he said. “It’s a bit of an overreaction. As an asset class, we’re cheap. And there’s room for performance after we digest some of this new issuance. It was kind of slow today. It wasn’t a panic. It just takes a little more effort right now to get anything done.”
Tax-exempt yields were steady across most of the curve Wednesday, according to the Municipal Market Data scale. Debt maturing between 11 and 16 years saw a one-basis-point increase.
The two-year, 10-year and the 30-year triple-A yields each closed Wednesday’s session flat, at 0.33%, 1.83% and 3.14%, respectively.
Treasury yields had a light rally Wednesday, falling up to eight basis points on the long end before backing up to more modest gains. The benchmark 10-year Treasury yield fell three basis points to 1.75%.
The 30-year yield, which fell eight basis points crossing into the afternoon, ended down three basis points to 2.84%. The two-year yield inched down one basis point to 0.30%.
Though rather quiet, it was still possible to pick up a few decent pieces in the secondary market, the Chicago trader said. “It’s sporadic — it’s a value piece here and value piece there,” he added. “In general, everything has been widening out.”
An early close is recommended Friday ahead of the Memorial Day holiday, so traders likely regard this week as a shortened one. The industry still anticipates a solid uptick in primary issuance. Muni volume estimates hold that $9.19 billion will reach the market, compared with $6.83 billion that turned up last week.
On the negotiated side of the ledger, Bank of America Merrill Lynch accepted institutional orders for $949.5 million of New York City general obligation bonds in two series. The bonds for the deal, which was upsized by almost $150 million from the retail order period, are rated Aa2 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields for the first series, $53.3 million, ranged from 0.60% with a 2.00% coupon in 2014 to 2.70% with coupons of 3.00% and 5.00% in a split maturity in 2024. Yields in 2024 rose 10 basis points from those offered in the second retail-order period. Credits maturing in 2012 and 2013 were offered in a sealed bid. The bonds are callable at par in 2022.
Yields for the second series, $896.1 million, ranged from 0.60% with coupons of 4.00% and 5.00% in a split maturity in 2014 to 3.22% with a 5.00% coupon in 2032. Credits maturing in 2013 were offered in a sealed bid. The bonds are callable at par in 2022.
But the yields for both series were lowered by four basis points for five-year maturities. And they were pushed up 15 basis points for those credits maturing at the 10-year mark.
Barclays Capital priced $399.6 million of San Diego County Regional Transportation Commission limited-tax sales tax revenue bonds. The bonds are rated Aa2 by Moody’s and AAA by Standard & Poor’s.
Yields range from 0.30% with 2.00% and 3.00% coupons in a split maturity in 2014 to 4.125% at par and 3.72% with a 5.00% coupon in a split maturity in 2048. Credits maturing in 2013 were offered in a sealed bid. The bonds are callable at par in 2022.
Wells Fargo Securities priced $298 million of Virginia Resources Authority infrastructure revenue and state moral obligation revenue bonds in two series. Yields for the first series, $205 million of infrastructure revenue bonds, ranged from 0.50% with a 3.00% coupon in 2014 to 3.32% with a 5.00% coupon in 2042. The bonds in the series are rated triple-A by Moody’s and S&P.
Credits maturing in 2012 and 2013 were offered in a sealed bid. The bonds are callable at par in 2022.
Yields for the second series, $93 million of state moral obligation revenue bonds, ranged from 0.35% with a 2.00% coupon in 2012 to 3.95% with a 4.00% coupon in 2042.
The bonds in the series are rated Aa2 by Moody’s and AA by Standard & Poor’s. The bonds are callable at par in 2022.
In the competitive market, B of A Merrill won $280 million of Ohio school GO bonds. The bonds were rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields range from 2.18% with a 5.00% coupon in 2022 to 3.36% with a 4.00% coupon in 2030. Credits maturing in 2013 through 2021, as well as in 2031 and 2032, were sold but not available. The bonds are callable at par in 2021.
Moody’s recently wrote that its outlook for new and existing tobacco settlement revenue bonds is stable. The rating agency reached its conclusion despite the fact that cigarette consumption, a key driver factoring into this year’s Master Settlement Agreement payment, will continue declining.
Moody’s concluded that domestic cigarette market share between the participating manufacturers that make the MSA payments that ultimately back tobacco bonds and the non-participating manufacturers that do not will remain stable. It also predicted that the likelihood that litigation challenging the MSA-regime will succeed remains low.