Municipals slip along with Treasuries on positive nonfarm payrolls; 10-year yield up 9 bps

By Sheri Kasprzak

New York, Nov. 6 – Municipals weakened with Treasuries after a positive nonfarm payrolls report, traders said, as the market awaits a subdued $4 billion of supply ahead of the Veterans Day holiday.

The 10-year benchmark muni yield rose by 9 bps to 2.33%, and the 30-year yield rose 8 bps to 3.09%. The two-year note yield rose by 5 bps to 0.89%. The increase Friday pushed yields up 10 bps to 12 bps for the week.

Meanwhile, over in Treasuries, the 10-year benchmark note yield rose by 8 bps to 2.34%, and the 30-year bond yield rose 8 bps to 3.09%. The five-year note yield rose by 8 bps to 1.73%. The two-year yield rose 5 bps to 0.90%, a record high for 2015.

Meanwhile, U.S. nonfarm payroll employment rose by 271,000 in October, according to a report from the Bureau of Labor Statistics.

Rate hike’s impact ‘modest’

The bond market has been abuzz about the Federal Reserve’s first interest rate hike in nine years, but the impact on munis will probably be modest and temporary, said J.R. Rieger, global head of fixed income at S&P Dow Jones Indices.

“The expected bump in rates has long been anticipated and is most likely built into the bond markets, including the municipal bond market,” Rieger wrote in a note released Friday.

“The timing and actual amount of the first rise in rates is the uncertainty. In addition, the market is expecting rates to rise but over a long time horizon.”

Massachusetts brings bonds

Among Friday’s reasonably heavy primary action, the Commonwealth of Massachusetts offered $500 million of series 2015A transportation fund rail enhancement revenue bonds. The deal was upsized from $450 million.

The bonds (Aaa/AAA/) were sold through senior managers Citigroup Global Markets Inc. and BofA Merrill Lynch.

The bonds are due 2017 to 2038 with term bonds due in 2040 and 2045, according to a term sheet. The serial coupons range from 3% to 5% and yields from 0.44% to 3.4%. The 2040 bonds have a 4% coupon priced at 104.188 to yield 3.48% and a 5% coupon priced at 115.313 to yield 3.13%. The 2045 bonds have a 4% coupon priced at 103.203 to yield 3.6% and a 5% coupon priced at 114.691 to yield 3.2%.

Proceeds will be used to finance rail projects in the commonwealth.

Hawaii prices deal

Elsewhere, the State of Hawaii sold $244.26 million of series 2015 airport system revenue bonds.

The deal included $235,135,000 of series 2015A AMT bonds and $9,125,000 of series 2015B non-AMT bonds.

The 2015A bonds are due 2041 and 2045. The 2041 bonds have a 5% coupon priced at 109.167 to yield 3.85%. The 2045 bonds have a 4.125% coupon priced at 98.731 to yield 4.2% and a 5% coupon priced at 108.581 to yield 3.92%.

The 2015B bonds are due in 2045 and have a 4% coupon priced at 99.651 to yield 4.02%.

The bonds (A1/A+/A) were sold through senior managers Morgan Stanley & Co. LLC, BofA Merrill Lynch and Barclays.

Proceeds will be used to finance capital improvements to the Honolulu International Airport, Kahului Airport, Hilo International Airport, Kona International Airport and Lihue Airport.

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