The yield on Puerto Rico bonds issued Tuesday in the island's $3.5 billion sale has fallen by 40 basis points in secondary trading.
Yield on the bonds fell by 14 basis points Tuesday to 8.59% since becoming free to trade 15 minutes before market closing time, according to the MSRB. The yield has sunk another 26 basis points to 8.33% Wednesday morning, Bloomberg data show.
More than 270 buyers submitted $16 billion of orders on Puerto Rico's sale yesterday, the Puerto Rican government said in a press release, inspiring the commonwealth Tuesday morning to raise the offering by $500 million from an originally planned $3 billion sale.
The bonds feature an 8% coupon and a par call option in six years, and came with an initial yield of 8.73%.
Patrick Smith, chief investment officer at Granite Springs Asset Management, said secondary demand for the bonds would be high.
"We expected a strong secondary market; it was a question of magnitude," Smith said Wednesday in an interview. "There was a great deal of demand that wasn't met. They could have increased the size and would have found more takers."
Smith said the strengthening of the bonds is likely driven by market demand for high yield as supply in the municipal market begins to bolster from record lows so far this year. More investors are becoming comfortable with risk-on behavior as fears about rising interest rates and the Federal Reserve's tapering program dissipate.
Puerto Rico was the most actively traded region in the municipal market Wednesday morning, with $415.7 million of bonds trading hands, according to Bloomberg data. Trades on the newly minted bonds maturing in 2035 comprised 20% of all municipal market trades through 10:30 a.m. in New York.
Negotiated deals scheduled for Wednesday include The New York State Dormitory Authority's issuance of $830 million personal income tax bonds, $800 million of which are tax exempt. Citigroup Global Markets is the lead underwriter, and the bonds are rated triple-A by Standard & Poor's and AA by Fitch Ratings.
The city of Houston, Texas' Combined Utility System is also planning to issue $685.96 million of revenue refunding bonds in the negotiated market. Siebert Brandford Shank & Co. is the managing underwriter for the bonds, rated AA by S&P and Fitch.
The Miami-Dade County, Fla., Airport Enterprise is also planning $158.525 of aviation revenue refunding bonds, with Goldman, Sachs & Co. leading the sale. The bonds are rated A2 by Moody's Investors Service and A by S&P and Fitch.
In the competitive space, Hartford, Conn.'s metro district will bring a four-part deal totaling $278.222 million of bond anticipation notes. The notes are not yet rated.
Also coming to market Wednesday are $158.5 million of Boston general obligation bonds rated AAA by Moody's. Sequoia Union High School District, Calif., will issue $117 million of general obligation bonds, which are currently unrated.
Municipal bond yields measured by Municipal Market Data's AAA scale firmed on both intermediate and long-term bonds, falling as much as four to six basis points, respectfully.
Treasury yields declined Wednesday morning, with the 30-year and the 10-year benchmark dropping five basis points each to 3.67% and 2.73%, respectfully. Two-year notes slid one basis point to 0.37%.
with reporting by Hillary Flynn
