Pricings on Monday’s new deals offered municipal bond investors a version of show and tell: the new supply showed promise, but told little.
Investors saw fairly steady prices on the offerings that were slightly firm, without too much give, according to a trader in New York.
“People are looking at the retail pricings of some of these sizable issues,” he said. “And I don’t think today’s issues revealed much.”
This week promised the largest volume for new debt offerings seen this year in the primary market. New issues are expected to total $8.27 billion, against a revised $5.71 billion last week.
The coming $400 million Metropolitan Water Reclamation District of Greater Chicago deal should reveal more about the market than Monday’s deals did, the trader said. The bonds are rated triple-A, but because they’re from Illinois, he added, investors will likely be hesitant.
Trading in the secondary market took the day off to let the highly anticipated primary bask in all of the attention investors could bestow upon it.
Subsequently, munis were steady across the curve throughout the day, according to Municipal Market Data scale.
The benchmark 10-year muni yield ended Monday flat at 2.66% for the fifth straight day, 32 basis points beneath its average for 2011.
The two-year yield also held a 0.40% yield for a fifth consecutive day, its low for 2011.
The 30-year yield remained at 4.32% for a second straight session, 30 basis points under its average for the year.
Treasury yields ended the day higher across the curve. The 10-year yield rose one basis point to 2.92%.
The two-year yield inched up one basis point to 0.37%. The 30-year yield increased six basis points to 4.31%.
Among the larger negotiated deals on the day, Siebert Brandford Shank & Co. priced $347.3 million of Texas Public Finance Authority general obligation and refunding bonds. The debt was rated triple-A by Moody’s Investors Service and Fitch Ratings, and AA-plus by Standard & Poor’s.
Yields range from 0.44% with both a 3.00% and a 4.00% coupon in a split maturity in 2013 to 4.20% with a 4.00% coupon in 2031. Credits maturing in 2012 were not formally reoffered.
Raymond James & Associates priced for retail $149.1 million of Tampa Bay Water utility system refunding revenue bonds. The bonds are rated Aa2 by Moody’s and AA-plus by Standard & Poor’s and Fitch.
Yields range from 0.20% with a 2.00% coupon in 2011 to 2.75% with both a 4.00% and a 5.00% coupon in a split maturity in 2019. Raymond James lowered yields five basis points farther out on the curve at re-pricing.
Morgan Keegan & Co. priced $123.4 million of Frisco, Texas, GO refunding and improvement bonds. The bonds are rated Aa1 by Moody’s and AA by Standard & Poor’s.
Yields range from 0.15% with a 3.00% coupon in 2012 to 4.38% with a 4.25% coupon in 2031.
Morgan Keegan lowered yields three to five basis points for maturities at the front end of the curve.
Traders mentioned that they’re eager to get a sense of prices from the new supply.
As secondary activity has been rather light of late, price discovery has been limited.
However, new-issue pricings often do a better job than secondary transactions of establishing and proving trading levels — they provide more numbers for investors to make decisions, according to Alan Schankel, a managing director in fixed income at Janney Capital Markets.
“On initial consideration, increased supply might be expected to pressure yields upward,” he wrote in a recent research report, “but a robust new-issue calendar adds interest and activity to a market which for much of the year lacked strong and frequent price-discovery opportunities.”
The market is also keeping an eye on the forces of uncertainty generated by the showdown in Washington over the impending debt-ceiling calamity as well as the ongoing crisis in Europe.
Some analysts are even looking for opportunities amid the dust the volatility has stirred.
Citi’s George Friedlander wrote in a recent report that he would generally view as a buying opportunity the pattern of higher yields and slower demand that could emerge from concerns over the debt ceiling and rating agency actions.
In general, Friedlander and other analysts continue to look farther out on the yield curve for value. Cash equivalents in the first five maturities in the high-grade market, with their near-zero yields, remain unattractive.
“As such,” Friedlander wrote, “we are continuing to encourage investors to lengthen maturity to take advantage of the very steep slope of the muni yield curve.”
Janney Capital’s Schankel seconded the notion when he wrote that investors can find value in longer maturities on a muni yield curve with a slope approaching historic highs.
“Lingering credit concerns about municipal issuers are a factor in the heightened steepening, but issues beyond the municipal market, specifically strong flight-to-quality demand for shorter U.S. Treasury issues, resulting from the continuing European contagion, have contributed to slopes near the steepest levels of the past 30 years,” he wrote.
“The yield differential between five-year and 30-year muni triple-A benchmarks exceeds 310 basis points, approaching levels seen earlier this year as well as January 2009.”
In economic news, the National Association of Home Builders/Wells Fargo Housing Market Index released Monday showed that builder confidence in the market for newly built, single-family homes rose just two points to 15 for July.
The index has held within a three-point range in nine of the past 10 months.
