The municipal bond market started the week on a strong note with yields heading lower with Treasuries as bankrupt Jefferson County, Ala., issued bonds for retail investors for a second day.
The primary market was focused on the $1.78 billion of Jefferson County sewer bonds priced for retail investors Monday after an initial pricing last Friday. Yields were unchanged ahead of institutional pricing on Tuesday.
In the secondary market, yields fell even as bonds were put out for bid by sellers. “There is a lot of stuff out for the bid and it seems like there is a little activity,” a San Francisco trader said. “It’s a little stronger with Treasuries.”
A Chicago trader called it “a trade-by-appointment day,” adding that, aside from the Jefferson County and $1.5 billion Port Authority of New York and New Jersey deals, supply is relatively light this week. “Refundings are off the table and it doesn’t feel like big supply is going to happen. Outflows have come. People are going to boutique shops and the big funds are down.”
Trading volume climbed to $5.37 billion by Monday afternoon, beating the average of the past five Mondays by more than 10%. Dealers sold $2.31 billion to customers while they bought $1.55 billion of bonds from customers. Dealers traded $1.5 billion between themselves.
Citi held a second retail order period for the Jefferson County sewer revenue warrants. The only changes from Friday’s pricing was the elimination of 2036 and 2037 maturities in the fifth series.
The senior lien bonds are rated BBB by Standard & Poor’s and BB-plus by Fitch Ratings. The senior lien series carries insurance from Assured Guaranty Municipal Corp. and ratings of A2 from Moody’s Investors Service and AA-minus from Standard & Poor’s. The subordinate bonds are rated BBB-minus by Standard & Poor’s and BB by Fitch.
In the second retail pricing Monday, the first series of $375 million of senior lien sewer revenue current interest warrants were priced at par to yield 5.5% in 2044, 5.625% in 2048, and 5.75% in 2053. Portions of bonds maturing in 2044, 2048, and 2053 were not offered for retail. The bonds are callable at par in 2023.
The second series of $55 million of senior lien sewer revenue capital appreciation warrants yielded from 6% in 2025 to 6.875% in 2036. Portions of bonds maturing between 2026 and 2035 were not offered for retail.
The third series of $70 million of senior lien sewer revenue convertible capital appreciation warrants yielded 6.5% in 2038 and 6.625% in 2042.
Yields on the fourth series of $834.3 million of subordinate lien sewer revenue current interest warrants ranged from 2.75% with a 5% coupon in 2015 to 6.5% priced at par in 2053. Portions of bonds maturing in 2042, 2051, and 2053 were not offered for retail. The bonds are callable at par in 2023.
The fifth series of $42.2 million of subordinate lien sewer revenue capital appreciation warrants yielded 7.5% in 2028 and 7.875% in 2033. Portions of bonds maturing between 2029 and 2035 were not offered for retail.
The sixth series of $402.7 million of subordinated lien sewer revenue convertible capital appreciation warrants yielded 7.5% in 2044. Bonds maturing in 2039, 2047, and 2050 were not offered for retail.
The Jefferson County pricing kicks off a week in which $7.91 billion in new issuance is forecast, up from last week’s revised $4.86 billion. The negotiated calendar should see $6.86 billion, up from last week’s revised $3.38 billion. On the competitive calendar, $1.05 billion should be auctioned, down from the past week’s revised $1.58 billion.
In the secondary market, trades compiled by data provider Markit showed strengthening.
Yields on Michigan Tobacco Settlement Financing Authority 6s of 2048 fell six basis points to 8.08% and San Antonio Water 5s of 2027 slid three basis points to 3.42%.
Yields on New Jersey Economic Development Authority 5s of 2028 slid three basis points to 4.91% and Dormitory Authority of the State of New York 5s of 2041 slid two basis points to 4.99%.
Yields on California 5s of 2043 and Louisiana Local Government Environmental facilities and Community Development Authority 5s of 2038 fell one basis point each to 4.75% and 5.04%, respectively.
On Monday, the triple-A Municipal Market Data scale ended as much as two basis points stronger. The 30-year yield slid two basis points to 4.11%. The two-year and 10-year yields closed unchanged for the third session at 0.33% and 2.61%, respectively.
Yields on the Municipal Market Advisors benchmark scale ended as much as three basis points stronger. The 30-year yield slid two basis points to 4.31%. The two-year and 10-year yields fell one basis point each to 0.38% and 2.68%, respectively.
Treasuries were strong Monday. The 10-year and 30-year yields each fell four basis points to 2.67% and 3.76%, respectively. The two-year yield fell one basis point to 0.29%.
