The municipal market was weaker by six to eight basis points overall Tuesday, with yields widening to 10-to-12 basis points on the long end, amid a flood of new issuance.
The weakness led to the Massachusetts Development Finance Agency downsizing its expected $740 million Harvard University offering to $601.1 million and conceding 20 basis points in yield, according to market sources, helping accelerate the market’s downward spiral.
Morgan Stanley priced the deal in three series.
Bonds from the $362.6 million Series B-1 mature in 2020 and from 2028 through 2030, with a term bond in 2040. Yields range from 2.63% with a 5% coupon in 2020 to 4.20% with a 5% coupon in 2040. Traders indicated the issuer wanted to price the 30-year debt at 4.00% but were forced to move yields up 20 basis points to complete the deal. These bonds are callable at par in 2020.
Bonds from the $178.2 million Series B-2 mature in 2034, yielding 4.00% with a 5.25% coupon.
Bonds from the $60.2 million Series B-3 mature from 2020 through 2024, with yields ranging from 2.54% with a 5% coupon in 2020 to 3.19% with a 5% coupon in 2024. These bonds are callable at par in 2021.
The credit is rated triple-A by both Moody’s Investors Service and Standard & Poor’s.
“There’s just a ton of supply out there today and it’s pushing yields higher,” a trader in Los Angeles said Tuesday. “On the long end, we’re substantially weaker, maybe 10 to 12 basis points depending on what you’re trading. But even the shorter maturities are down at least three to five basis points.”
Elsewhere in the new-issue market, Bank of America Merrill Lynch priced $789.4 million of taxable and tax-exempt debt Tuesday for the Los Angeles County Public Works Financing Authority, including $688 million of taxable Build America Bonds.
The BABs mature from 2020 through 2025, with term bonds in 2033 and 2040. The bonds are priced at par to yield from 5.591% in 2020, or 3.63% after the 35% federal subsidy, to 7.618% in 2040, or 4.95% after the subsidy.
The bonds were priced to yield between 300 and 425 basis points over the comparable Treasury yields, and contain a make-whole call at Treasuries plus 55 basis points.
The $101.4 million tax-exempt series matures from 2014 through 2019, with yields ranging from 1.80% with a 2% coupon in 2014 to 3.45% with a 5% coupon in 2019. These bonds are not callable.
The credit is rated A1 by Moody’s and A-plus by both Standard & Poor’s and Fitch Ratings.
Ramirez & Co. priced $750 million of taxable BABs for the New York City Municipal Water Finance Authority.
The BABs mature in 2042 and 2044, yielding 6.282% and 5.882%, or 4.08% and 3.82% after the 35% federal subsidy.
The bonds were priced to yield 207 and 167 basis points over the 30-year Treasury yield, respectively. They are callable at par in 2020, except bonds maturing in 2044, which contain a make-whole call at Treasuries plus 40 basis points.
The credit is rated Aa2 by Moody’s and AA-plus by both Standard & Poor’s and Fitch.
Barclays Capital priced $709.2 million of taxable debt for the University of California Regents, including $700 million of taxable BABs.
The BABs mature from 2021 through 2025 with term bonds in 2031 and 2048. Yields range from 5.035% in 2021, or 3.27% after the 35% federal subsidy, to 6.548% in 2048, or 4.26% after the subsidy.
The bonds were priced to yield between 225 and 320 basis points over the comparable Treasury yields, and contain a make-whole call at Treasuries plus 50 basis points.
The credit is rated Aa2 by Moody’s and AA-minus by Standard & Poor’s.
Municipal Market Data’s triple-A scale yielded 2.55% in 10 years Tuesday, nine basis points higher than Monday’s 2.46%, while the 20-year scale yielded 3.66%, 11 basis points more than Monday’s 3.55%. The scale for 30-year debt climbed 13 basis points to 4.10% Tuesday from 3.97% Monday.
“It’s weaker overall, but out long, we’re down as many as 10 basis points,” a trader in New York said. “On the whole, we’re probably anywhere from five to seven basis points cheaper.”
Tuesday’s triple-A muni scale in 10 years was at 96.6% of comparable Treasuries and 30-year munis were at 96.9%, according to MMD, while 30-year tax-exempt triple-A general obligation bonds were at 105.9% of the comparable London Interbank Offered Rate.
The Treasury market was weaker Tuesday. The benchmark 10-year note was quoted near the end of the session at 2.67% after opening at 2.55%. The 30-year bond was quoted near the end of the session at 4.25% after opening at 4.13%. The two-year note was quoted near the end of the session at 0.46% after opening at 0.37%.
In economic data released Tuesday, wholesale inventories increased 1.5% in September.
Wholesale sales for September increased 0.4%.
Economists expected wholesale inventories to rise 0.7% for the month and for sales to increase 0.6%, according to the median estimate from Thomson Reuters.
