A flood of new issuance hit the municipal market Tuesday. And underwriters tried to make sure that sufficient concessions from the extremely low nominal yields made the deals as attractive as possible.
Did they succeed? One trader from New Jersey thought the concessions needed to be greater, as investor interest, particularly from the retail side, was underwhelming.
“A lot of these new issues weren’t too well-received,” he said. “Right now, there’s not a lot of appetite at these levels.”
Tax-exempt yields ended the day mixed, according to the Municipal Market Data scale. They were steady through three years, and between 19 and 21 years.
Around those ranges, they were one to five basis points higher on the short end out to 18 years, and one basis point lower beyond 21 years.
The 10-year muni yield rose five basis points Tuesday to 2.29%. The 30-year yield slipped one basis point to 3.54%.
The two-year yield held steady for a fifth straight session at 0.34%.
Treasury yields weakened across the curve. The benchmark 10-year Treasury yield rose seven basis points to 1.84%.
The 30-year yield also jumped seven basis points to 2.81%. The two-year yield edged up two basis points to 0.26%.
In total, $8.26 billion of new issuance is expected this week. Last week, the market saw a revised $7.69 billion in new supply.
It’s important when considering the results of this week’s new issuance to take stock in how the recent uptick in volume in the primary markets has been received. Most of the negotiated supply that arrived last week did poorly during retail order periods, according to Citi’s George Friedlander.
That demonstrated how many retail investors have a degree of “rate shock.” It also burdened underwriters with more bonds than expected to sell during the institutional pricing period, he wrote in a research report.
What’s more, the recovery in new-issue supply allowed muni yields to reach some kind of floor compared with Treasury yields, Friedlander added. To make matters more muddled for the market, the rebound in new supply met an uncertain environment.
“The muni market appears to be beset by continuing confusion as to what the right yield level should be for a given issue or block of bonds in a given state,” Friedlander wrote. “The vast number of forces that are tugging on the muni market, described above, is taking a toll in terms of still-high market uncertainty.”
Many new deals arrived Tuesday. In the largest deal anticipated in the competitive market, the Dormitory Authority of the State of New York is expected to sell $515.6 million of personal income tax general purpose revenue bonds in two separate issues.
Wells Fargo Securities won $460.7 million of the DASNY general purpose revenue bonds. The bonds were rated AAA by Standard & Poor’s and AA by Fitch Ratings.
Yields ranged from 0.50% with a 5.00% coupon in 2013 to 4.31% with a 4.25% coupon in 2041. Credits maturing in 2012, 2014, 2017, and 2033 were not reoffered. The second issue has yet to sell.
Bank of America Merrill Lynch won $241.8 million of Florida Board of Education public education capital outlay refunding bonds. The bonds are rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch.
Yields range from 2.87% with a 5.00% coupon in 2022 to 3.03% with a 5.00% coupon in 2023. Credits maturing in 2024 and 2025 were sold, but not offered.
On the negotiated side, Morgan Stanley priced $608.3 million of Triborough Bridge and Tunnel Authority general revenue refunding bonds for New York’s Metropolitan Transportation Authority bridges and tunnels. The bonds were rated Aa2 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields range from 0.35% with a 2.00% coupon in 2013 to 3.61% with coupons of 3.50% and 5.00% in a split maturity in 2028.
Credits maturing in split and multiple maturities in 2013, 2014 and from 2016 through 2022, as well as 2024, 2026, and 2028 were not offered. Yields firmed three basis points from the retail pricing for debt maturing in 2013.
But they rose five basis points from the retail pricing for credits maturing in the 10-, 15- and 17-year range. At re-pricing, they jumped nine basis points from retail pricing at the 17-year range.
RBC Capital Markets priced for retail $526.8 million of Oklahoma Turnpike Authority refunding second-senior revenue bonds. The bonds were rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields range from 0.74% with coupons of 1.00% and 5.00% in a split maturity in 2014 to 3.68% with coupons of 3.70% and 5.00% in a split maturity in 2028. Debt maturing in 2012 and 2013 was offered in a sealed bid.
Some credits maturing in split and multiple maturities from 2014 through 2028 were not offered. Debt maturing in the 10-year range rose two basis points from the retail pricing while all other ranges remained unchanged. Debt offered across the curve decreased by two or three basis points at re-pricing.
JPMorgan priced $187.6 million of Houston public improvement refunding bonds. The bonds were rated Aa2 by Moody’s and AA by Standard & Poor’s. Yields ranged from 0.89% with a 4.00% coupon in 2015 to 3.08% with a 5.00% coupon in 2023.
Goldman, Sachs & Co. priced for retail $139.7 million of Illinois Finance Authority revenue bonds for the Trinity Health Credit Group. The bonds were rated Aa2 by Moody’s and AA by Standard & Poor’s and Fitch. Yields range from 0.75% with a 2.00% coupon in 2012 to 4.875% priced at par in 2030.