Tax-exempt bonds weakened along the curve Tuesday, erasing much of the modest rally seen late last week. But while secondary bids were soft, new-issue pricing was firm to strong.
“There were a number of deals, so it was an active day in the muni market,” a trader in New York said. “New bonds were really well-received.”
Yields rose two basis points for tax-exempts maturing between 2019 and 2036, while short-term yields held steady and long-term yields rose a single basis point, according to Municipal Market Data’s triple-A scale.
“The slow and steady march has come to a halt,” a trader in San Francisco said. “This is the first time in a while we’ve seen more than $5 billion. … It’s slowing some of the guys down. The secondary feels pretty illiquid out there.”
MMD’s Randy Smolik added: “The negotiated deals being priced today are numerous, creating a problem of focus for the secondary. With the flurry of new supply and the drift in Treasuries, the high-grade secondary bid has suffered.” The session left the two-year yield at a calendar-year low of 0.44%, while the 10-year yield moved up to 2.62% and the 30-year yield rose to 4.25%.
Despite losses in the MMD scale, the $2.13 billion iShares S&P National Municipal Bond Fund, an exchange-traded fund, rose 0.1% on the day to $103.62. It’s up 0.07% over the past five sessions and 1.35% over the past month.
Treasury rates were largely responsible for guiding muni yields higher, as the taxable market sold off in early trading with the 10-year yield climbing as much as five basis points to 3.05%.
Money flooded back into Treasuries in the final hour of trading, however, as Federal Reserve chairman Ben Bernanke offered a dour assessment of the economy at the International Monetary Conference in Atlanta.
Calling economic growth “uneven” and “slower than expected,” Bernanke made the case for a “vigilant” and “highly accommodative” monetary policy.
The speech erased gains in the stock market and drove the 10-year Treasury yield to 2.98%. The two-year Treasury ended two basis points lower at 0.40%, while the 30-year yield finished where it started at 4.25%.
In the new-issue market, Citi priced $304.8 million of parking revenue bonds for the Metropolitan Boston Transit Parking Corp. The bonds, rated A1 by Moody’s Investors Service and A-plus by Standard & Poor’s, offered yields from 3.58% in 2022 to 5.04% in 2041.
Morgan Stanley cut yields substantially as it priced for institutional investors $189.8 million of refunding revenue bonds for Stanford Hospital through the California Health Facilities Financing Authority. The two-pronged deal is rated Aa3 by Moody’s, AA-minus by Fitch Ratings, and A-plus by Standard & Poor’s.
Yields ranged from 1.05% in 2012 — 10 basis points lower than during Monday’s retail period — to 3.81% in 2021, or five basis points lower than on Monday.
“It means nothing,” the New York trader said of the lower yields. He said decent hospital credits have been pricing well for a while, so it was not unexpected.
A term bond in 2040 offered 5.40%, which is 10 basis points more than the pricing wire indicated Monday, but that maturity wasn’t offered to retail buyers.
Goldman, Sachs & Co. also cut yields across the curve as it sold $346.4 million of marine terminal revenue refunding bonds for a BP Pipelines project via Valdez, Alaska. The deal is rated A2 by Moody’s and A by Standard & Poor’s. Yields in the final pricing ranged from 1.50% in 2014 to 4% in 2021, compared with a preliminary range of 1.60% to 4.125%.
Bank of America Merrill Lynch sold $326.5 million of fixed-rate private loan financing bonds for the New Jersey Higher Education Student Assistance Authority. The deal is rated Aa3 by Moody’s and single-A by Fitch. Yields on the serial bonds ranged from 1.97% in 2012 to 5.86% in 2029; a term bond maturing in 2033 offered a 5.90% yield.
Bank of America Merrill also brought to market $165.3 million of water and wastewater bonds for Baltimore. The deal is rated Aa2 by Moody’s and AA by Standard & Poor’s. Yields ranged from 0.67% in 2013 to 4.55% in 2041.
Morgan Keegan & Co. sold $134 million of water revenue bonds for the Birmingham Water Works Board. Serial bonds were offered from 2012 to 2027, with term bonds in 2031, 2036, and 2041. The bonds are rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Yields on the serial bonds ranged from 0.50% in 2012 to 4.49% in 2027. The term bonds offered yields from 4.80% to 5.10%.
In the competitive market, New York City sold $209 million of general obligation bonds in three series.
Morgan Stanley won the $130 million portion of taxable new-money bonds. A $30 million subseries with maturities from 2013 to 2016 priced at a true interest cost of 1.787%, while a $100 million subseries with maturities from 2017 through 2026 priced at a TIC of 3.92%.
New York also converted $81.75 million of variable-rated demand bonds into fixed-rate tax-exempts via competitive sale. JPMorgan won the $24.3 million subseries maturing in 2012, priced with a TIC of 0.219%, while a $54.8 million subseries maturing in 2021 and 2023 was won by Wells Fargo with a TIC of 3.405%. The debt was given double-A ratings by all three agencies.
The Bond Buyer’s 30-day visible supply ticked up to $10.738 billion Tuesday — compared to an average of $6.84 billion over the last two months — indicating that a decent slab of supply could finally be entering the market.
“Ten billion in 30 days is not a huge amount; it just helps to get back to some semblance of normal,” the San Francisco trader said.
The 2011 high of $11.21 billion for 30-day supply set on Feb. 11 never translated into much. Issuance year-to-date is roughly half the levels of last year.
