A robust municipal bond market continued on its upward trajectory, comfortably absorbing new issues and driving prices higher.
Tax-exempt yields outperformed those of Treasuries, as market gauges reported a muni market firming by about two basis points for all but the shortest maturities. Its tone, much as it has been for the year, remained strong, a trader in California said. Puerto Rico debt yields were stable following a report that Morgan Stanley was discussing arranging a loan for the territory with hedge and private equity funds and other investors.
"The market seems OK," he said. "New issues are getting pretty good reception; prices are a little higher than had been anticipated. The market feels good."
By midday, traders saw strength in deals executed across the yield curve, as well as many requests for buy orders. Activity picked up
"We're pretty strong, much more active than yesterday," a trader in Illinois said. "Bonds are just getting cleaned up. It doesn't really matter where; people are just buying. There's a lot of money to be put to work."
Levels for trades on the retail front, though, appeared to soften slightly, despite an increase in bid-wanteds, a retail trader in Texas said.
"These levels kind of got a little overdone, just because there was so little paper around," he said.
In the negotiated space, Bank of America Merrill Lynch priced $1 billion of Port Authority of New York and New Jersey taxable bonds, structured as two bullet maturities in 2046. They are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
The first series, $500 million, yields 4.96% priced at par in 2046. The credits are priced to yield 120 basis points over comparable Treasuries.
The second series, also $500 million, yields 5.31% priced at par in 2046. The credits are priced to yield 155 basis points over comparable Treasuries.
Barclays priced $676.5 million of New York State Thruway Authority general revenue bonds, increasing the size of the deal by $26 million from Tuesday's retail order period. The bonds are rated A2 by Moody's and A by Standard & Poor's.
Yields ranged from 0.64% with coupons of 4.00% and 5.00% in a split maturity in 2017 to 4.70% with a 4.625% coupon in 2044. Credits maturing in 2015 and 2016 were offered in a sealed bid. Yields on debt maturing through 2023 were lowered between two and seven basis points from retail order period pricing.
The state of Washington auctioned the two largest competitive deals. Both were rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch.
JPMorgan won $348.3 million of Washington state various-purpose general obligation bonds. Yields ranged from 2.37% with a 5.25% coupon in 2022 to 3.96% with a 5.00% coupon in 2039.
Morgan Stanley won $269.3 million of Washington state motor vehicle fuel-tax GOs. Yields ranged from 0.15% with a 6.00% coupon in 2015 to 3.96% with a 5.00% coupon in 2039.
Puerto Rico generated more headlines Wednesday. The New York Times reported Morgan Stanley was assembling hedge and private equity funds to lend $2 billion to the territory, though it cited people briefed on the proposal as saying the firm hadn't been hired to underwrite such a deal. The Government Development Bank of Puerto Rico, which oversees the government's issuance of debt, declined to comment to The New York Times or The Bond Buyer about Morgan Stanley's project.
Puerto Rico had said in October that it would use Barclays and RBC Capital Markets to underwrite its next debt offering. Island officials told The Bond Buyer on Jan. 2 that they'd been approached by hedge funds about possible lending opportunities but that Puerto Rico was not interested in this approach to borrowing. Instead, they said that the Puerto Rico government planned to sell a bond by the end of February.
Fitch and Moody's put Puerto Rico on reviews for downgrades in late November and early December. Both agencies cited questions about the Puerto Rico government's access to the bond market at reasonable rates as factors in putting its debt on review.
It is unclear if a Puerto Rico debt sale to hedge funds through Morgan Stanley would satisfy the ratings agencies about the commonwealth's access to the market. A successful bond sale at a reasonable rate would satisfy the agencies' concerns.
On Wednesday, Alan Schankel, managing director of Janney Capital Markets, wrote in a research note that the Morgan Stanley project could serve as a backup plan for Puerto Rico if it chooses not to sell a third-lien Puerto Rico Sales Tax Financing Corp. (COFINA) bond.
Puerto Rico bond yields on the secondary market have declined since the start of the year, however, undercutting the need to turn to hedge funds for financing. Yields on the secondary market for a 27-year Puerto Rico bond, Schankel wrote, have declined by 61 to 83 basis points since the start of the year.
On the day, a trader in New York said volume in Puerto Rico paper jumped 20%. Yields on Puerto Rico remained stable, another market participant added, with no substantial negative or positive reaction in trading Wednesday.
Yields on the Municipal Market Data triple-A scale strengthened across most of the curve Wednesday, with the greatest firmness past 21 years. Tax-exempt yields for credits maturing after 2018 were flat to three basis points lower.
The 10-year triple-A yield slipped one basis point Wednesday to 2.58%. The 30-year yield fell three basis points to 3.87%, while the two-year held at 0.34% for a 12th straight session.
Yields on the Municipal Market Advisors benchmark triple-A scale firmed by as much as two basis points across most of the curve Wednesday.
The 10-year triple-A yield slid one basis point to 2.58%. The 30-year decreased two basis points to 4.10%, while the two-year remained at 0.34%.
Treasury yields continued to weaken across the curve. The 10-year yield increased three basis points to 2.86%. The two-year rose two basis points to 0.41%, while the 30-year yield climbed two basis points to 3.76%.
