The primary market took center stage in the municipal market as most of the bigger deals of the week arrived on Wednesday. Some traders noted the large amount of deals forced some price cuts, but said that didn’t take away from the fact that deals were well-received.
“Today is the heaviest new issue day of the week and that’s getting all the attention,” said a trader in Atlanta. “That’s where the focus is and where money is but it does seem like there is decent underlying interest for bonds.”
He added that bonds priced cheaper are “disappearing” if they are adjusted down in price. “The market is a touch softer but it’s mostly driven by new issues coming out.”
The mixed tone carried throughout the day. Earlier Wednesday, some traders said the market was struggling with $5 billion of new issuance in a holiday-shortened week, while others said deals were being priced well and the market isn’t as weak as some believe.
A New York trader said while the Municipal Market Data scale showed cuts, munis “didn’t seem that weak,” adding that “there is also very little activity” as traders wait for the bigger deals expected this week.
Still, munis weakened Wednesday, according to the MMD scale.
Yields inside four years were steady while the five-year yield rose two basis points. Yields between the eight-year and 20-year jumped between one and two basis points. Outside 21 years, yields were steady.
On Wednesday, the two-year yield was steady at 0.26%, the same record low recorded by MMD on Feb. 16. The 30-year yield was steady at 3.27%. The 10-year yield rose two basis points to 1.88%.
Since munis started weakening last Friday, the 10-year yield has risen six basis points while the 30-year yield has jumped five basis points.
Treasuries were stronger Wednesday. The benchmark 10-year yield and the 30-year yield fell two basis points each to 2.03% and 3.17%, respectively. The two-year was steady at 0.31%.
In the negotiated market, Goldman, Sachs & Co. priced $860 million of Regents of the University of California taxable general revenue bonds late Tuesday evening. They are rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s, and AA-plus by Fitch Ratings.
The deal was sold to about 60 institutional investors. “It was supposed to be a multi-day deal and the interest was so strong we decided to close down shop in one day,” said a spokesman for the California state treasurer. “Demand was so high we decided to increase the size from $500 million to $860 million.”
The 100-year “century bonds” yielded 4.858%, 165 basis points over the 30-year U.S. Treasury rate of 3.208%, the spokesman said.
Barclays Capital repriced $363 million of Wisconsin general obligation refunding bonds, rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields ranged from 0.35% with a 3% coupon in 2014 to 3.00% with a 5% coupon in 2031. The bonds are callable at par in 2022. Yields were lowered up to three basis points from preliminary pricing.
Wells Fargo priced $282.2 million of Virginia Public School Authority school financing bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch. Yields ranged from 0.25% with a 2% coupon in 2013 to 3.15% with a 3% coupon in 2030. The bonds are callable at par in 2022.
Bank of America Merrill Lynch priced $318 million of San Francisco Airport Commission revenue bonds Wednesday. The bonds are rated A1 by Moody’s and A-plus by Fitch.
Yields on the first series, $208.9 million of bonds subject to the alternative minimum tax, ranged from 2.44% with a 5% coupon in 2024 to 4.07% with a 5% coupon in 2032. The bonds are callable at par in 2022.
Yields on the second series, $109.1 million of bonds not subject to the alternative minimum tax, ranged from 0.61% with a 2.5% coupon in 2014 to 3.32% with a 5% coupon in 2030. The bonds are callable at par in 2022.
Morgan Stanley priced $241 million of the University of Texas System Board of Regents revenue financing system refunding bonds, rated triple-A.
Yields ranged from 0.29% with a 4% coupon in 2014 to 3.42% with a 5% coupon in 2043. Credits maturing in 2013 were offered via sealed bid. The bonds are callable at par in 2022.
In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming Wednesday.
Bonds from an interdealer trade of Metropolitan Transit Authority of New York 7.134s of 2030 yielded 4.68%, six basis points lower than where they traded Tuesday.
Bonds from another interdealer trade of Bay Area Toll Authority 6.793s of 2030 yielded 4.89%, four basis points lower than where they traded Tuesday.
A dealer bought from a customer Chicago 6.034s of 2042 at 5.70%, four basis points lower than where they traded Tuesday.
Despite three consecutive days of weaker munis, muni-to-Treasury ratios have fallen as munis outperformed Treasuries and became more expensive. Since munis started weakening last Friday, the five-year ratio has fallen to 73.3% on Tuesday from 75.6%. The 10-year ratio fell to 90.7% from 91.5%. The 30-year muni-to-Treasury ratio dropped to 102.2% from 102.5%.