Top-rated municipal bonds ended sharply weaker on Wednesday, according to traders, with yields on long maturities rising by 15 basis points.
Municipal bond traders also dealt with the aftermath of Tuesday's surprise presidential win by Donald Trump, as several bond deals were postponed and placed on the day-to-day list due to market volatility.
The yield on the 10-year benchmark muni general obligation rose 15 basis points to 1.86% from 1.71% on Tuesday, while the yield on the 30-year increased 15 basis points to 2.69% from 2.54%, according to the final read of Municipal Market Data's triple-A scale.
Analysts were quick to point out that caution should be the watchword of the day.
"In the short-term, we have to be careful about being whip-sawed back and forth," said Dan Heckman, senior fixed income strategist U.S. Bank Wealth Management. "The market was poorly positioned for this, so we have to be careful about overreacting at this stage."
Looking ahead, a different trend could emerge.
"It's not very positive for muni bond prices in the long term," he said, adding the market would be looking at a potential change in leadership at the Federal Reserve and its possible move from a monetary focus to a fiscal one.
"The likelihood of hefty fiscal stimulus coming down the pike mostly through lower tax rates has a curve steepening effect," MMD Senior Market Analyst Randy Smolik wrote in a market comment. "The steeper curve was accentuated by the economic uncertainty that will likely push Fed rate hikes in December on the back burner."
It is unclear how tax policy will play out next year, Heckman said, adding that corporate tax rates were likely to drop relatively quickly, while a decline in personal income tax rates could take longer to accomplish.
"If President Trump handles Congress the right way, he has a clear path with the House, Senate, and White House all under Republican control," Heckman said.
This could be a positive for infrastructure, he said, since Trump has frequently talked about the crumbling state of U.S. infrastructure and the need to fix it.
Voters passed at least 122 of the largest bond referendums worth a total of $48.58 billion. Over $70 billion of bonds were on the ballot this year, the most since 2006.
Fixing America's roads, bridges, tunnels and ports "is a popular item among the people," Heckman said, "and with the House and Senate with him, this perhaps increases the odds of increased spending."
He said it was too early to tell how much or what shape funding and financing could take, but was hopeful a program like Build America Bonds could be utilized to help rebuild infrastructure.
U.S. Treasuries were substantially weaker on Wednesday. The yield on the two-year rose to 0.89% from 0.86% on Tuesday, the 10-year Treasury gained to 2.07% from 1.86% and the yield on the 30-year Treasury bond increased to 2.88x% from 2.63%.
U.S. equities reversed course to trade higher after plunging overnight when Dow futures dropped more than 900 points. In late trade, the Dow Jones Industrial Average was up about 280 points, the S&P 500 increased around 25 points and the Nasdaq gained about 50 points.
The 10-year muni to Treasury ratio was calculated at 89.9% on Wednesday compared to 91.7% on Tuesday, while the 30-year muni to Treasury ratio stood at 93.6% versus 96.7%, according to MMD.
Primary Market
Citigroup priced the Bristol, Tenn., Industrial Development Board's $120.6 million of Series 2016A state sales tax revenue bonds and Series 2016B state sales tax revenue capital appreciation bonds for the Pinnacle Project on Wednesday.
The $91.09 million of Series 2016A bonds were priced as 5s to yield 5.20% in 2035 and as 5 1/8s to yield 5.375% in 2042. The $29.52 million of Series 2016B CABs were priced to yield from 4.80% in 2018 to 5.50% in 2026 and 6% in 2031. The deal is not rated.
Morgan Stanley said Mississippi's $226.56 million of Series 2016A tax-exempt general obligation bond deal was placed on day-to-day status. The deal is rated AA by S&P Global Ratings.
Since 2006, the Magnolia State has issued about $5.88 billion of debt, with the most issuance occurring in 2015 when it sold $1.22 billion of bonds. It sold the least amount of securities in 2014, when it offered only $7 million of debt.
Wells Fargo Securities said that the Montgomery County, Texas' $141.43 million of Series 2016A unlimited tax road bonds and limited tax refunding bonds were placed on day-to-day status.
And Stifel said the Sacramento Area Flood Control Agency Consolidated Capital Assessment District No. 2, Calif.'s $220 million of Series 2016A tax-exempt assessment revenue bonds were also put on the day-to-day calendar.
JPMorgan Securities was expected to price the New Jersey Educational Facilities Authority's $137 million of Series 2016B&C higher education capital improvement fund issue bonds on Wednesday. A JPMorgan spokesperson declined to comment on the status of the deal. The bonds are rated A3 by Moody's and A-minus by S&P and Fitch Ratings.
