Bank of America Merrill Lynch dominated the municipal bond market primary on Wednesday as it priced and then repriced $674 million of Chicago deals to lower most yields and won the bidding for Pennsylvania's $1.24 billion offering.
Prices of top-shelf municipal bonds finished mixed, according to traders, with yields unchanged to slightly weaker.
Windy City
A group including BAML as senior manager on Wednesday priced the four Chicago deals that total $674 million. All series were repriced in the afternoon to cut yields from one to as much as 16 basis points in most short and long maturities; bonds in the 2024 to 2031 maturities were left mostly unchanged.
The $176.2 million of Series 2002B Neighborhoods Alive 21 Program general obligation bonds were repriced to yield from 3.00% with a 5% coupon in 2016 to 5.73% with a 5.50% coupon in 2034; a 2037 maturity was priced as 5 1/2s to yield 5.78%. The 10-year and 22-year bonds were priced at 293 basis points and 270 basis points over the Tuesday Municipal Market Data's triple-A scale, respectively.
The $174.01 million of Series 2005D project and refunding GOs were repriced as 5 1/2s to yield 5.72% in 2033, as 5 1/2s to yield 5.73% in 2034, as 5 1/2s to yield 5.78% in 2037 and as 5 1/2s to yield 5.81% in 2040. The 22-year and 25-year bonds were priced at 270 basis points and 265 basis points over the MMD scale, respectively.
The $170.09 million of Series 2003B project and refunding GOs were repriced to yield from 3.00% with a 5% coupon in 2016 to 5.73% with a 5.50% coupon in 2034. The 10-year and 19-year bonds were priced at 293 basis points and 276 basis points over the MMD scale, respectively.
The $153.7 million of GO refunding bonds consisted of $76.86 million of Series 2007E bonds repriced as 5 1/2s to yield 5.74% in 2035 and as 5 3/4s to yield 5.84% in 2042; $61.49 million of Series 2007F bonds repriced as 5 1/2s to yield 5.74% in 2035 and as 5 3/4s to yield 5.84% in 2042; and $15.36 million of 2007G bonds repriced as 5 1/2s to yield 5.74% in 2035 and as 5 1/2s to yield 5.84% in 2042. The 20-year and 27-year bonds were priced at 273 basis points and 264 basis points over the MMD triple-A scale, respectively.
Chicago bonds have been recently trading in the secondary market at about 300 basis points over the MMD scale.
The issue is rated A-minus by Standard & Poor's, BBB-plus by Fitch Ratings and A-minus by Kroll Bond Rating Agency
The sale came after the downgrade earlier this month of the city to Ba1 by Moody's Investors Service over the challenges posed to city pension reforms by a state Supreme Court ruling voiding state pension changes.
Fitch and S&P also downgraded the city, to BBB-plus and A-minus, respectively, within investment grade territory, citing liquidity risks posed by the Moody's downgrade. Kroll affirmed the city's A-minus rating.
Keystone State
Pennsylvania competitively sold $1.24 billion of GOs, which were won by BAML with a true interest cost of 3.11%.
The $460 million of second Series of 2015 bonds were priced to yield from 0.60% with a 5% coupon in 2016 to 4.10% with a 4% coupon 2035. The $777.23 million of first refunding Series of 2015 bonds were priced as 5s to yield from 0.22% and 0.60% in a split 2016 maturity to 3.10% in 2026. The 4s of 2035 were priced 109 basis points over the MMD triple-A scale while the 5s of 2026 bonds were priced 72 basis points over the MMD scale.
The bonds are rated Aa3 by Moody's and AA-minus by Fitch.
"The Pennsylvania deal clearly came in very attractive and I would suspect that the deal did well," a New York trader said.
On Wednesday, the Pennsylvania Series 2015-1 GO 5s of 2020 were yielding 1.95% compared to 1.92% in the previous session, according to Markit.
"Pennsylvania is widely viewed as another in the growing list of states which has a large unfunded pension liability and its spread in the market has grown during the past 12 months," Municipal Market Data Senior Strategist Daniel Berger wrote in a Wednesday comment. "In the 10-year range, this spread is 50 basis points [over the MMD scale] versus its 12-month average of 33.2 basis points [over the MMD scale]."
The Keystone state last sold bonds competitively on Feb. 3 when BAML won $1 billion of first series of 2015 GOs with a TIC of 2.99%.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Wednesday finished unchanged from 2.25% on Tuesday, while the yield on the 30-year GO fell two basis points to 3.21% from 3.23%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed on Wednesday as the yield on the two-year Treasury note rose to 0.65% from 0.61% from Tuesday, while the 10-year yield increased to 2.14% from 2.13% and the 30-year yield was unchanged at 2.89%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 105.4% versus 105.3% on Tuesday, while the 30-year muni to Treasury ratio stood at 111.6% compared to 111.6%, according to MMD.
