NEW YORK - The municipal bond market was mixed today, as the primary attracted firm bids, but there was little follow-through in the secondary given a negative tone in the Treasury market.
"It's really a new issue market today," a trader in New York said. "The new issue market is going quite well. They got very aggressive numbers, but if you put paper out for the bid I can't tell you what it is going to be. You don't have that much going on in the secondary."
Traders said with the government bond market holding in negative territory after the $15 billion five-year note auction, the bid-ask spreads were widening in the tax-exempt sector. After holding flat in the first part of the session, bids were a touch weaker in the afternoon, but there was little in terms of actual trading to prove that.
Most participants focused on the primary market, where New Jersey Economic Development Authority sold $1.47 billion cigarette tax revenue bonds. Citigroup Global Markets was the lead underwriter on the deal and was able to lower yields one to 25 basis points at a repricing because of reportedly strong demand.
"There is a fair amount of demand for yield paper, if you look where the absolute levels are right now," the trader said. "Accounts are looking for as much yield as they can get, as long as the paper stays investment grade."
The cigarette tax revenue bonds are rated Baa2 by Moody's Investors Service and BBB by Standard & Poor's and Fitch Ratings. The deal was also partially insured by FSA and FGIC.
Insured paper yielded 27 to 35 basis points more than comparable maturities on Municipal Market Data's Tuesday triple-A yield curve scale, while uninsured bonds offered as much as 129 basis points more in yield than high-grade bonds.
The deal was priced to yield from 3.13% in 2007 to 5.05% in 2019. It also included four term maturities due in 2024, 2029, 2031 and 2034 with 5 1/2 or 5 3/4 coupons. The final 2034 maturity totaled $169 million and was priced as 5 3/4s to yield 5.93%. This compares to the yield of 4.73% on the MMD's scale.
Traders said competitive deals also got aggressive bids and some maturities on triple-A rated Maryland and Minnesota issues were reoffered at lower yields than the MMD scale.
Bidders were also willing to pay up for new issues yesterday and some trades in the secondary on newly issued Wisconsin general obligation bonds justified those firm levels and lent the market a good underlying tone.
Heavy selling that plagued the market last week has seized and there was some tentative buying interest in the secondary yesterday, but uncertainty related to the key employment report prevented market participants from becoming more activity involved in the secondary.
"A lot of people are setting positions ahead of Friday's numbers. We had people taking bonds from us yesterday, but the question is whether you reload or not," another trader in New York said. "Paper that was marked down in the past week was going away yesterday, but it's not much going on today."
The Treasury market performance also kept a lid on the municipal bond market. Most of earlier weakness was attributed to concession-building ahead of the five-year note auction, but it did not rebound after the notes were sold. The Treasury sold the notes with a 3 3/8 coupon at a high yield of 3.490% and a price of 99.477. The bid-to-cover was 2.32.
In recent trading, the two-year Treasury note was quoted down 1/32 to yield 2.66%, the 10-year note was quoted down 10/32 to yield 4.21% and the 30-year bond was quoted down 19/32 to yield 4.96%.
With no economic news on today's calendar, supply took center stage in both markets.
In the competitive sector, triple-A-rated Maryland sold $578 million general obligation bonds. Citigroup Global Markets bought the deal and reoffered serials to yield from 1.95% in 2007 to 3.48% in 2014 at lower yields than MMD's triple-A yield curve scale. Bonds due in 2006, 2009, 2011, 2015 and 2016 were not formally reoffered.
Meanwhile, Lehman Brothers won another triple-A rated deal, a $220 million Minnesota Public Facilities Authority water pollution control revenue bond offering. A $109 million refunding portion of the deal was reoffered at yields ranging from 2.06% in 2007 to 3.68% in 2016, except from 2008 and 2009 maturities, which were sold and not reoffered. Remaining serials were reoffered at yields ranging from 3.82% in 2017 to 4.10% in 2019, while bonds due in 2020 through 2024 were not formally reoffered.
Merrill Lynch won $137 million Delaware Transportation Authority transportation system senior revenue bonds. Most of the Delaware deal, which had a final maturity in 2024, was sold and not reoffered. Bonds due in 2012 through 2015 were reoffered at yields ranging from 3.35% to 3.66% and a 2022 maturity was reoffered at 4.35%. The issue is insured by FGIC and carries underlying ratings of Aa3 from Moody's and AA from Standard & Poor's.
Looking ahead to new issue volume, The Bond Buyer's 30-day visible supply calendar fell $33 million to $6.56 billion. The total comprises $3.18 billion of competitive loans and $3.38 billion in negotiated issues.
Disclosure
The Municipal Securities Rulemaking Board reported 28,096 trades Tuesday, comprising 12,221 separate issues. Of all bonds traded, 1,683 changed hands at least four times. Most active was Lee County, Fla., Industrial Development Authority utilities revenue 4 3/4s of 2033. The notes traded 104 times at a high of 100.991, a low of 97.491 and an average of 99.017.
