Bank of America Merrill Lynch dominated the attention of the municipal bond market on Wednesday as it priced the $668 million Chicago offering while it won the $1.24 billion of Pennsylvania bonds.
Prices of top-rated municipal bonds were trading unchanged to slightly stronger, according to traders.
Windy City
A group including BAML as senior manager on Wednesday priced the first of four city of Chicago deals that total $668 million.
The $170.22 million of Series 2005D project and refunding general obligation bonds were priced as 5 1/2s to yield 5.78% in 2033, as 5 1/2s to yield 5.82% in 2034, as 5 1/2s to yield 5.88% in 2037 and as 5 3/4s to yield 5.96% in 2040.
According to market sources, Chicago's $169.62 million of Series 2003B project and refunding GOs were priced to yield from 3.53% with a 5% coupon in 2017 to 5.82% with a 5.50% coupon in 2034; a 2016 maturity would be offered as a sealed bid.
Sources said Chicago's $176.17 million of Series 2002B Neighborhoods Alive 21 Program GOs were priced to yield from 3.53% with a 5% coupon in 2017 to 5.82% with a 5.50% coupon in 2034; a 2037 maturity would be priced as 5 1/2s to yield 5.88% and the 2016 maturity would be offered as a sealed bid.
Sources also said Chicago's $151.99 million of GO refunding bonds consisted of $76 million of Series 2007E bonds priced as 5 1/2s to yield 5.84% in 2035 and as 5 3/4s to yield 6% in 2042; $60.8 million of Series 2007F bonds priced as 5 1/2s to yield 5.84% in 2035 and as 5 3/4s to yield 6% in 2042; and $15.19 million of 2007G bonds priced as 5 1/2s to yield 5.84% in 2035 and
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 on the heels of the city's downgrade to Ba1 with a negative outlook from 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. Meanwhile, Kroll affirmed the city's A-minus rating and stable outlook.
Some maturities on Wednesday were priced as much as 285 basis points over Municipal Market Data's benchmark triple-A scale. Chicago bonds have been recently trading at about 300 basis points over the MMD triple-A scale.
In contrast, the state of Illinois GOs (A3/A-minus/A-minus) trade around 170 to 185 basis points over the MMD scale.
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 bonds are rated Aa3 by Moody's and AA-minus by Fitch.
On Tuesday, the Pennsylvania Series 2015-1 GO 5s of 2020 were yielding 1.92% compared to 1.95% 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 writes 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 Bank of America Merrill Lynch won $1 billion of first series of 2015 GOs with a TIC of 2.99%.
Also on Wednesday, Morgan Stanley is expected to price the San Mateo County Community College District, Calif.'s $127 million of GOs.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Wednesday was unchanged from 2.25% on Tuesday, while the yield on the 30-year GO was down as much as one basis point from 3.23%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were lower on Wednesday as the yield on the two-year Treasury note rose to 0.66% from 0.61% from Tuesday, while the 10-year yield increased to 2.17% from 2.13% and the 30-year yield increased to 2.91% from 2.89%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 105.3% versus 103.5% on Friday, while the 30-year muni to Treasury ratio stood at 111.6% compared to 109.6%, according to MMD.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $27.2 million to $13.33 billion on Wednesday. The total is comprised of $6.95 billion competitive sales and $6.38 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 43,170 trades on Tuesday on volume of $8.102 billion.
The most active bond, based on the number of trades, was the Riverside County Public Financing Authority, Calif.'s Series 2015 capital facilities project lease revenue bonds 4 1/8s of 2040, which traded 155 times at an average price of 100.027 with an average yield of 4.107%. The bonds were initially priced at 97.308 to yield 4.30%.
Yvette Shields contributed to this report
