Yields on top-rated municipal bonds rose as much as 10 basis points as Treasury bonds weakened on reports that China may halt its buying of U.S. government debt.
In the primary market, Morgan Stanley priced a big taxable deal in the negotiated sector and won a large note sale in the competitive arena.
The MBIS municipal non-callable 5% GO benchmark scale was weaker in late trading.
The 10-year muni benchmark yield rose to 2.331% on Wednesday from the final read of 2.278% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield gained to 2.835% from 2.780%.
Top-rated municipal bonds finished substantially weaker on Wednesday. The yield on the 10-year benchmark muni general obligation rose seven basis points to 2.12% from 2.05% on Tuesday, while the 30-year GO yield gained eight basis points to 2.72% from
2.64%, according to the final read of
MMD’s triple-A scale. Some intermediate maturities were from seven to 10 basis points higher.
“The muni market was offsides and needed to adjust,” said one New York trader in reference to the big jump in yields.
U.S. Treasuries were weaker in late activity as yields rose for a fifth straight session after reports surfaced that Chinese officials were reviewing the nation’s foreign-exchange holdings and may slow or halt future purchases of Treasury securities.
The yield on the two-year Treasury gained to 1.97% on Wednesday from 1.96% on Tuesday, the 10-year Treasury yield rose to 2.56% from 2.55% and the yield on the 30year Treasury increased to 2.89% from 2.88%.
The 10-year muni-to-Treasury ratio was calculated at 83.2% compared with 80.5% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 94.0% versus 91.5%, according to MMD.
The trader also said the muni market supply/demand equation still favors a forward net negative supply scenario and as a result there are and will still be buyers.
“The market just needs to rebalance and redistribute risk before they chase the offered side again,” he said. “In the meantime the buyers will continue to be content buying on the bidside. Spreads will, and should, continue to widen as the market adjusts. Lastly, the sellers will not be sticking the proceeds of their sales under the mattress. The money will be reinvested. One likely reinvestment vehicle will be taxable munis. The back off in absolute treasury rates combined with still rich muni ratios have left taxable munis cheaper on a relative value basis.”
Morgan Stanley priced Stanford Health Care, Calif.’s $500 million of Series 2018 corporate CUSIP taxable bonds.
The taxables were priced at par with a 3.795% coupon (about 90 basis points above the comparable Treasury 30-year security) and are due on Nov. 15, 2048, with a first interest payment on May 15.
Proceeds of the sale will be used for general corporate purposes.
The deal is rated Aa3 by Moody’s Investors Service, AA-minus by S&P Global Ratings and AA by Fitch Ratings.
In the competitive bond arena on Wednesday, Worcester, Mass., sold $103.795 million of GOs in two separate sales.
Morgan Stanley won the $75.195 million of municipal purpose loan of 2018 Series A GOs with a true interest cost of 2.8991% while Raymond James won the $28.6 million of taxable Series B GOs with a TIC of 3.7379%.
Since 2008, Worcester has sold about $963 million of bonds, with the most issuance occurring in 2016 when it sold $170 million. The city saw a low year in 2009 when it sold $40.4 million. ◽