The tax-exempt market experienced a whole lot of nothing Monday as primary issuance was down and secondary trading was slow.
“The market is waiting for some of the deals to be priced to get a feel for what’s going on for the week,” said a trader in Atlanta. “Monday morning started off slow and picked up a little in the afternoon, but there was not a whole lot of action in the secondary.”
Monday was quiet throughout most of the day and traders did not change their opinion of the market as the day progressed.
“You’re not seeing much of anything,” said a trader in Dallas. “It is quiet coming into the chute.” With the shortened week due to the Veterans Day holiday on Friday, most deals will come in the front-end of the week, the trader said. “The vast majority is getting into the market by Wednesday.”
On Monday, tax-exempt yields were steady within the belly of the curve and fell one basis point after 2018, according to the Municipal Market Data scale. The two-year yield closed at 0.42% for its fifth consecutive trading session. The 10- and 30-year yields closed down one point each to 2.29% and 3.70%, respectively.
Treasuries led the day with yields on the long end falling as investors moved to the safe-haven asset. “The focus is shifting around Europe, from one weak area to the next,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in his research note. “Relief that Greece will form a unity government is more than offset by concern that Italy’s worsening political drama will bump it into the bailout camp currently occupied by Greece, Ireland and Portugal.”
And indeed, Treasury yields fell in the middle to long end of the curve. The benchmark 10-year slipped two basis points to 2.02% while the 30-year fell four basis points to 3.06%. The two-year finished at 0.24%.
In the primary market today, high-grade issues stole the spotlight. Citi priced for retail $600 million New York City Transitional Finance Authority future tax-secured bonds and tax-exempt subordinate bonds. The credits are rated Aa1 by Moody’s Investors Service and AAA by Standard & Poor’s and Fitch Ratings.
Yields ranged from 2.85% with a 4% coupon in 2022 to 4% priced at par in 2033. Debt maturing in 2013 was offered via sealed bid. Credits maturing in 2024, 2025, 2027, 2028, 2032 and 2038 were not offered for retail. The bonds are callable at par in 2021.
BMO priced $205.8 million of Chicago taxable general obligation bonds a day ahead of schedule. The bonds are rated Aa3 by Moody’s, A-plus by Standard & Poor’s, and AA-minus by Fitch. The credits mature in 2042 and are priced to yield 300 basis points over the 30-year Treasury. The tax-exempt portion of the deal is expected to price Tuesday.
Ramirez & Co. priced for retail $189 million of Philadelphia water and wastewater revenue bonds in two series. The bonds are rated A1 by Moody’s, A by S&P and A-plus by Fitch.
On the first series, $135 million of water and wastewater revenue bonds, credits yielded 4.56% with a 4.5% coupon in 2036. Credits maturing in 2041 were not offered for retail. The bonds are callable at par in 2021. Yields on the second series, $54.3 million of revenue bonds, ranged from 1.94% with 4% and 5% coupons in a 2016 split maturity to 3.88% with a 5% coupon in 2026. The bonds are callable at par in 2021.
U.S. Bancorp won the auction for $25 million of Lake County Forest Preserve District, Ill., general obligation bonds. The credit is rated triple-A.
In the secondary market, munis couldn’t seem to get going even as Treasury yields fell in the morning, but picked up a little in the afternoon. “Muni professionals were not engaging in the secondary even though Treasuries have developed a strong bid,” wrote MMD analyst Randy Smolik. “Firm secondary markets were very selective. Most participants seemed to be on hold for the active underwriting scheduled in a holiday shortened week.”
Trades recorded by the Municipal Securities Rulemaking Board showed small gains in the 15-year range and beyond.
A dealer sold to a customer Montgomery County Economic Development Authority 4.093s of 2025 at 3.89%, 20 basis points lower than where they traded last Friday.
Bonds from an interdealer trade of New York Metropolitan Transit Authority 5s of 2028 yielded 4.07%, eight basis points lower than where they traded last Thursday.
A dealer sold to a customer Massachusetts School Building Authority 5s of 2041 at 4.10%, three basis points lower than where they traded last Thursday.
A dealer bought from a customer Connecticut 5s of 2026 at 3.24%, one basis point lower than where they traded last Thursday.
Looking forward to year-end, muni experts at Bank of America Merrill Lynch estimate supply should come in around $260 billion to $272 billion for the year if issuance dwindles as the holidays approach.
“The muni market has been able to absorb the recent elevated supply with grace and ease, in spite of ratios that have exceeded 100% through most of the curve,” wrote John Hallacy, B of A Merrill’s municipal research strategist.
Indeed, ratios are above 100% in both the short and long end. The five-year muni-to-Treasury ratio was 135.2% as of Friday. The 10-year ratio is 112.7% and the 30-year ratio is 120.1%.
But the fast-approaching Nov. 23 deadline set for the Joint Select Committee to come up with spending cuts could start weighing on munis. “Retail demand has returned, and not as many crossover or global buyers are trying to gauge the systemic risk of munis to the sovereigns,” Hallacy wrote. “But the events of Nov. 23 could heavily influence what takes place as we return from Thanksgiving to close out the year.”