Issuers in California and Texas were met with ample demand Tuesday as they priced some of the largest new deals expected this week, a sign that investors are beginning to see value after two-month slide in the municipal bond market.
Reception in the primary market led to secondary market price discovery and an uptick in trading as interest was focused on the short-end and long-end of the curve.
“I think it’s firming up,” a Texas trader said. “I thought it would be weaker early but the way deals are going and with the fair amount of activity, I bet the trade count is above 45,000 if not pushing 50,000. There is good flow and the buy side number of trades remains strong so people are feeling good about it.”
The largest deal of the day came from California with Morgan Stanley pricing $631.5 million of California Health Facilities Financing Authority revenue bonds for the St. Joseph Health System. The bonds are rated A1 by Moody’s Investors Service and AA-minus by Standard & Poor’s and Fitch Ratings.
Yields on the $331.5 million part ranged from 3.43% with a 4% coupon in 2021 to 5.05% with a 5% coupon in 2037. The bonds are callable at par in 2023. Traders said bonds maturing between 10 and 13 years were 12 to 15 times oversubscribed. Yields were lowered as much as 10 basis points in repricing.
The remaining $300 million was divided into three series.
The first series of $100 million was priced 85 basis points above Monday’s Municipal Market Data scale with a 5% coupon maturing in 2043. The bonds have a mandatory put date in 2017.
The second series of $100 million was priced 95 basis points above the MMD scale with a 5% coupon in 2032. The bonds have a mandatory put date in 2019.
The third series of $100 million was priced 100 basis points above MMD with a 5% coupon in 2043 with a mandatory put date in 2020.
“St. Joe’s is priced so cheap and it only had an order period until 10:45 a.m,” a New York trader said. “People were showing a lot of interest in it.”
Issuers out of Texas took advantage of stability in the market with three deals each over $100 million leading issuance Tuesday.
“It’s the size of the deals that are driving interest,” a Texas trader said. “The maturities are shorter and there is a fair amount of retail.”
Many of the deals were structured with 4% and 5% coupons, helping to lure in institutional interest as well. “Institutions are buying up those cheap bonds.”
JPMorgan priced and repriced $282.8 million of Austin, Texas, water and wastewater system revenue refunding bonds, rated double-A by Moody’s and Standard & Poor’s, and AA-minus by Fitch.
Yields ranged from 0.63% with a 4% coupon in 2015 to 4.51% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered as much as 10 basis points on bonds maturing before 2029, with most of the bumps in prices between 2016 and 2019.
Ramirez & Co. priced $193 million of Dallas, Texas, general obligation refunding and improvement bonds, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s.
Yields ranged from 0.52% with a 4% coupon in 2015 to 4.00% priced at par in 2032. The bonds are callable at par in 2023 except bonds maturing in 2032. Credits maturing in 2014 were offered via sealed bid.
Bank of America Merrill Lynch priced for retail $187.4 million of Tarrant County Cultural Education Facilities Finance Corp. for the Methodist Hospitals of Dallas.
Yields ranged from 0.82% with a 3% coupon in 2015 to 4.91% with a 4.75% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. Portions of bonds maturing between 2025 and 2043 were not offered for retail. The bonds are callable at par in 2023.
In New York, B of A Merrill priced for institutions $167 million of triple-A rated New York State Environmental Facilities Corp. revolving revenue bonds following retail pricing Monday. Traders said $112 million orders were placed by retail.
Yields ranged from 0.57% with a 3% coupon and 0.65% with a 4% coupon in a split 2015 maturity to 4.34% with a 5% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered as much as five basis points from retail pricing on bonds maturing within six years. Yields were raised as much as seven basis points on bonds maturing between 2020 and 2023.
Even with strong demand in the primary, secondary trades were weaker.
Yields on New York’s Metropolitan Transportation Authority 5s of 2029 increased five basis points to 4.07% and Pennsylvania Public School Building Authority 5s of 2033 rose four basis points to 4.40%.
Yields on California 5s of 2043 and Cook County, Ill., 5s of 2019 rose two basis points each to 4.62% and 2.69%, respectively.
Yields on University of Minnesota 4s of 2031 and New York City Municipal Water Finance Authority 4.25s of 2047 increased one basis point each to 4.06% and 4.59%, respectively.
Yields on the MMD and Municipal Market Advisors scaled ended higher for the day.
Yields on the MMD scale ended as much as five basis points higher Tuesday. The 10-year yield increased three basis points to 2.74% and the 30-year yield climbs five basis points to 4.01%. The two-year was steady at 0.52% for the third session.
Yields on the MMA scale also ended as much as five basis points higher. The 10-year yield rose three basis points to 2.91% and the 30-year yield rose four basis points to 4.12%. The two-year was steady at 0.56% for the second session.
Treasuries ended mixed Tuesday. The two-year yield increased one basis point to 0.37% and the 30-year yield rose two basis points to 3.65%. The benchmark 10-year yield fell one basis point to 2.63%.
Bonds in the intermediate part appeared to see the most cuts in the secondary market. “Trading was light to start the week with yields four basis points to seven basis points higher in the intermediate spot of the curve,” wrote analysts at Interactive Data. “Investors are focused on this week’s new issue pricing as the tone of the secondary will be influenced by the acceptance of new issue levels. Trading is active in the secondary market, and quoted market spreads have widened in recent sessions.”
