The municipal bond market rallied Tuesday as new issuance found willing investors and tax-exempts outperformed Treasuries.
Sparse supply in the wake of the Independence Day holiday last week gave the market the opportunity to digest the new deals that preceded it. That, combined with June and July coupon payments, laid a foundation for investor demand to build for this week’s offerings.
“It seemed like it went pretty well today,” a trader in New York said. “New issuance came out and started with some retail offering periods, and they seem to have gone pretty well with the response. It could be that cash has just built up on the sidelines in the last week and a half, or so, due to the holiday, or just that the reinvestment period is starting to kick in nicely.”
On the day, tax-exempt yields ended mostly lower, according to the Municipal Market Data scale. They were steady through two years.
Yields from three to 10 years fell two basis points. Beyond 10 years, they were down three to four basis points, and were strongest in the 13- to 21-year range.
As with Monday’s session, the 10-year triple-A yield slipped two basis points in Tuesday’s session to 1.78%. The 30-year fell three basis points on the day, as it had on Monday, to 3.06%. The two-year hovered at 0.32% for the 27th consecutive session.
Treasury yields, by comparison, underperformed their muni cousins. The benchmark 10-year yield inched down one basis point to 1.51%.
The 30-year yield slipped two basis points to 2.60%. The two-year ticked up one basis point to 0.28%.
“Everyone’s looking for somewhere to put his money,” the trader in New York said. “Especially as rates keep dropping in Treasuries; you need something with a little extra juice in it.”
Muni supply is expected to approximate levels seen in June, after recording particularly feeble issuance numbers last week due to July 4 falling mid-week.
Industry estimates predict $7.07 billion should reach the market. That compares with a meager $105.7 million of volume during the holiday week.
In the negotiated market, JPMorgan priced for retail $850 million of New York City Transitional Finance Authority building aid revenue bonds. They are rated Aa3 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields range from 0.71% with coupons of 3.00% and 4.00% in a split maturity in 2015 to 4.05% with a 4.00% coupon in 2042. Debt maturing in 2014 was offered in a sealed bid.
No more retail orders are being accepted for credits maturing in 2024 through 2027, and 2028 through 2031, as well as in 2035 and 2040. The bonds are callable at par in 2022.
Bank of America Merrill Lynch priced $314.8 million of the Central Puget Sound Regional Transit Authority sales tax and motor vehicle excise tax refunding bonds and sales tax refunding bonds, in two series.
Bonds in the first series, $216.5 million of sales tax and motor vehicle excise tax refunding bonds, are rated Aa1 by Moody’s and AAA by Standard & Poor’s. Yields range from 0.34% with 3.00% and 5.00% coupons in a split maturity in 2014 to 2.75% with a 5.00% coupon in 2028.
Debt maturing in 2013 is offered in a sealed bid. The bonds are callable at par in 2022.
Yields for the series were lowered two basis points for the 10-year and eight basis points for the 16-year at repricing.
Bonds in the second series, $98.3 million of sales tax refunding bonds, are rated Aa2 by Moody’s and AAA by Standard & Poor’s.
Yields range from 0.81% with 4.00% and 5.00% coupons in a split maturity in 2016 to 3.37% with a 3.25% coupon in 2030.
The bonds are callable at par in 2022.
On the competitive side of the ledger, JPMorgan won $405.6 million of Columbus, Ohio, various purpose unlimited-tax bonds. The bonds are rated triple-A by all three major credit agencies.
Yields range from 0.30% with a 3.00% coupon on 2014 to 3.46% with a 3.25% coupon in 2032.
Credits maturing in 2033 are not reoffered for sale. The bonds are callable at par in 2022.
Also, three banks split $500 million of Colorado general fund tax and revenue anticipation notes. The notes, which mature on June 27, are rated MIG-1 by Moody’s and SP-1-plus by S&P.
Goldman, Sachs & Co. won $100 million worth, which are priced to yield 0.18%. JPMorgan won $370 million worth, which are priced to yield 0.18%. Morgan Stanley won the final $30 million, which are priced to yield 0.18%.
In California, legislation aimed at sorting out how tax revenues that formerly went to now disbanded redevelopment agencies will be distributed made some in the industry a little anxious. The bill, which includes provisions that reduce property tax revenue to successor agencies, could cause shortfalls in cash available for debt service on outstanding bonds.
Standard & Poor’s wrote in a statement that AB 1484, passed on June 27, could lead to further confusion and potential cash-flow disruptions for some successor redevelopment agencies. S&P on Friday placed all of its ratings for investment-grade tax increment bonds in the state on CreditWatch with negative implications.
One California trader agreed with some of the findings in the Standard & Poor’s statement. In addition, the bill is not as bond-friendly as previous clean-up legislation, he said.
“This was more geared toward the state, and finding ways to close the loopholes that were in AB 26, from the state’s point of view, in terms of trying to grab as much revenue as they can,” the trader said. “It creates a little bit more uncertainty, given some of the deadlines that are being imposed.”
Ultimately, AB 1484 is clean-up legislation from the point of view of the state’s Department of Finance, he added, and less from the point of view of successor agencies and bondholders.
The legislation also doesn’t answer some of the questions that analysts have raised in terms of cash flows, the California trader said. “For bondholders and for successor agencies, it probably muddies the water a little bit more than we would’ve hoped for in clean-up legislation.”
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