The tax-exempt market continued to chug along Wednesday as munis remained unfazed by supply in the primary market and weakening Treasuries. The 10- and 30-year muni yields continued to break record lows for the sixth consecutive trading session.
“Munis are firm today but quiet in the secondary,” a trader in Chicago said. “There are tons of cash to support new issues. Levels are firm but there is a lot more resistance to these levels.”
“I’m trying to do customer swaps but they have too much of a gain in long positions to generate swaps,” he said. “I’m neutral to bored at this point.”
The primary market seemed to pull attention away from the secondary. “The market remains firm and well-bid despite the dramatic decrease in yields that we’ve seen to start the year,” a trader in New York said. “Overall activity in the market appeared a little lighter today, as some significant new issues drew investor and dealer focus.”
Despite a slight weakening in Treasuries, munis are not drifting. “With a holiday-shortened week and limited supply for at least the rest of the week, these themes appear poised to continue for the next few trading sessions,” he said.
One deal in the primary market showed the strength of munis. Morgan Stanley repriced $129 million of Nashville and Davidson County Metropolitan Government water and sewer revenue refunding bonds and prices were bumped up five to 15 basis points from preliminary pricing.
Munis strengthened across the curve Wednesday, according to the Municipal Market Data scale. Yields inside the two-year were unchanged. Outside three years, yields fell two basis points.
On Wednesday, the two-year closed steady at 0.35% for its fourth consecutive session. The 10-year yield closed down two basis points to 1.67%, beating the previous record of 1.69% as recorded by MMD Tuesday. The 30-year dropped two basis points to 3.15%, beating the previous record of 3.17% registered on Tuesday.
Since the 10- and 30-year munis began to continuously break record lows starting on Jan. 10, yields have fallen 15 and 25 basis points, respectively.
Treasuries weakened, paring all gains made since last Thursday. The benchmark 10-year and 30-year yields jumped five and six basis points to 1.90% and 2.95%, respectively. The two-year yield held steady at 0.23%.
In the primary market Citi priced $463 million of Massachusetts new and refunding general obligation SIFMA index bonds, a surprise deal added to the calendar Tuesday. The credit is rated Aa1 by Moody’s Investors Service and AA-plus by Standard & Poor’s and Fitch Ratings.
Bonds on the first series, $171.24 million of refunding bonds, were priced to yield 25 basis points above the SIFMA swap index in 2014, 50 basis points above the index in 2015, and 48 basis points above the index in 2016. Credits maturing in 2013 were offered via sealed bid.
Bonds on the second series, $291.82 million of GOs, were priced to yield 13 basis points above the SIFMA swap index in 2013, 38 basis points above the index in 2014, 45 basis points above the index in 2015, and 52 basis points above the index in 2016. Bonds maturing in 2012 were offered via sealed bid.
JPMorgan priced $175 million of California Health Facilities Financing Authority revenue bonds, rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch. Yields ranged from 2.44% with a 4% coupon in 2021 to 4.20% with a 5% coupon in 2040. The bonds are callable at par in 2021.
On the competitive calendar, JPMorgan won the bid for $400 million of Port Authority of New York and New Jersey revenue bonds, rated Aa2 by Moody’s and AA-minus by S&P and Fitch.
Yields ranged from 3.00% with a 4.5% coupon in 2031 to 3.80% with a 4% coupon in 2042. Debt maturing in 2030 was not formally reoffered. The bonds are callable at par in 2022.
Citi won the bid for $220 million of Fairfax County, Va., public improvement bonds, rated triple-A by all three rating agencies. Yields ranged from 0.74% with a 5% coupon in 2017 to 3.067% with a 3% coupon in 2032.
Bonds maturing between 2013 and 2016, 2018, 2019, 2023, 2025, 2029, and 2030 were not formally reoffered. The debt is callable at par in 2020.
Fairfax County is also expected to issue $160 million of public improvement refunding bonds in the negotiated market Thursday, priced by Morgan Stanley.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board on Wednesday showed large gains from just a week ago.
Bonds from an interdealer trade of California 5s of 2041 yielded 4.08%, 19 basis points lower than where they traded last Wednesday. Bonds from another interdealer trade of Georgia 4.5s of 2028 yielded 2.60%, 19 basis points lower than where they traded a week ago.
Bonds from an interdealer trade of North Carolina Turnpike Authority 5s of 2029 yielded 2.80%, 12 basis points lower than where they traded last Wednesday. Bonds from an interdealer trade of Sharyland, Texas, Independent School District 5s of 2025 yielded 2.31%, nine basis points lower than where they traded a week ago.
Because munis continue to outperform Treasuries, muni-to-Treasury ratios have fallen over the past week. The five-year ratio fell to 101.3% on Tuesday from 102.4% the week before. The 10-year ratio fell to 91.4% from 94.2% and the 30-year ratio fell to 109.7% from 112.5% a week ago.