Supply-Demand Balance Keeps Munis Flat

The tax-exempt market was focused on the primary as three of the week’s largest deals were priced Tuesday.

Primary deals were very well received, with yields lowered after retail order periods Monday. Despite the large issuance day, the secondary market was mostly quiet, many traders said.

“It’s a little quiet from my perspective outside the primary,” a New York trader said. “It seems like our levels held in for the most part on a pretty low-volume day. If you look at the tape, it didn’t feel like a high-volume day.”

He said Treasuries were softening, and usually there is a desire to sell off and pocket profits. “But supply and demand seemed balanced today,” he added, which helped to stop muni yields from following Treasury yields higher.

Others agreed. “Munis are dead,” another New York trader said. “It’s horrible.” The secondary is quiet because all the focus is on the primary. “Dealers I talk to aren’t that busy,” he said.

The Municipal Market Data scale was unchanged. The two-year yield closed steady at 0.33% for the seventh consecutive trading session. The 10-year yield was flat at 1.95% while the 30-year yield was steady at 3.31%.

Treasuries were weaker. The benchmark 10-year yield and the 30-year yield each rose three basis points to 2.01% and 3.15%. The two-year yield increased one basis point to 0.28%.

In the primary market, Goldman, Sachs & Co. won the bid for the largest deal of the week, $950 million of Pennsylvania general obligation bonds. The credit is rated Aa1 by Moody’s Investors Service, AA by Standard & Poor’s and AA-plus by Fitch Ratings.

Yields ranged from 0.42% with a 4% coupon in 2014 to 3.63% with a 4% coupon in 2032. Credits maturing in 2013, 2018, 2019, and 2024 were not formally re-offered. The bonds are callable at par in 2022.

Also in the competitive market, Citi won the bid for $335.1 million of Virginia College Building Authority revenue bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s and Fitch.

Yields ranged from 0.78% with a 5% coupon in 2016 to 3.41% with a 4% coupon in 2032.

Credits maturing between 2013 and 2015 were not re-offered. The bonds are callable at par in 2022.

In the negotiated sector, Wells Fargo Securities priced for institutions $729.1 million of New York’s Metropolitan Transportation Authority revenue bonds, upsized from $556 million following a retail order period Monday. The credit is rated A2 by Moody’s and A by S&P and Fitch.

Yields ranged from 0.20% with a 2% coupon in 2012 to 4.26% with a 5% coupon in 2047.

The bonds are callable at par in 2022. Yields were lowered up to six basis points from retail pricing.

Bank of America Merrill Lynch priced for institutions $475.9 million of Atlanta airport general revenue bonds, following a retail order period Monday. The credit is rated A-plus by all three credit agencies.

Yields on the first series, $62.9 million of airport general revenue bonds not subject to the alternative minimum tax, ranged from 0.35% with a 2% coupon in 2013 to 3.99% with a 5% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered up to five basis points from retail pricing.

Yields on the second series, $185.5 million of non-AMT airport general revenue bonds, ranged from 0.35% with a 3% coupon in 2013 to 3.99% with a 5% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered up to six basis points from retail pricing.

Yields on the third series, $227.5 million of AMT airport general revenue bonds, ranged from 0.56% with a 4% coupon in 2013 to 4.45% with a 5% coupon in 2042. The bonds are callable at par in 2022. Yields were lowered up to 12 basis points in repricing.

Citi priced $238 million of Michigan Finance Authority state revolving fund revenue bonds, rated AAA by Standard & Poor’s and Fitch. Pricing details were not available.

In the secondary market, trades reported by the Municipal Securities Rulemaking Board showed firming in the past two weeks.

A dealer bought from a customer New York City Municipal Water Finance Authority 5.724s of 2042 at 4.12%, 20 basis points lower than where they traded two weeks ago. A dealer sold to a customer San Diego Community College District 5s of 2027 at 3.01%, 13 basis points lower than where they traded two weeks before.

A dealer sold to a customer Austin 5s of 2021 at 2.02%, 13 basis points lower than where they traded two weeks before. A dealer sold to a customer Illinois 5.1s of 2033 at 5.37%, three basis points lower than where they traded last week.

Munis told a different story according to data compiled by Markit. Out of eight CUSIP numbers, half were stronger, while the other half were weaker.

Yields on Massachusetts 5.25s of 2022 fell one basis point to 2.18% while California 4.25s of 2035 dropped four basis points to 4.31%. Yields on District of Columbia 6s of 2021 dropped 22 basis points to 2.45%.

Other CUSIPs showed weakening.

Yields of Wallingford, Conn., 4s of 2023 rose two basis points to 2.39% while yields on New Jersey 5s of 2018 jumped 10 basis points to 1.46%. Yields on Goose Creek, Texas, Consolidated Independent School District 5s of 2023 rose two basis points to 2.31%.

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