Prices of top-rated municipal bonds ended weaker on Tuesday, traders said, as a slew of new issues came to market, including three large competitive offerings from California, a sale from Phoenix, and a deal from the Chicago Board of Education.
Primary Market
Leading off the new supply slate on Tuesday were three separate competitive offerings from California totaling $1.1 billion. All three sales are rated Aa3 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.
Morgan Stanley won the $578.6 million of tax-exempt various purpose general obligation refunding bonds, Bid Group C, with a true interest cost of 3.4497%, and priced the deal to yield 0.10% with a 1% coupon in 2015 and from 2.36% with a 5% coupon in 2026 to 3.50% at par in 2035.
JPMorgan won the $408.6 million of tax-exempt various purpose GO refunding bonds, Bid Group B with a TIC of 1.2544% and priced the bonds to yield from 0.10% with a 2% coupon in 2015 to 2.05% with a 5% coupon in 2024.
Wells Fargo Securities won the $105.36 million of taxable various purpose GO, Bid Group A, with a TIC of 1.6942%, and priced the bonds as a 2020 bullet maturity as 1.80s to yield 1.68%.
The Golden State last sold tax-exempt bonds competitively on Nov. 13, 2014, when Bank of America Merrill Lynch won $630 million of tax-exempt various purpose GOs with a true interest cost of 2.9499%. The state last sold taxable bonds competitively on Nov. 13, 2014, when Citi won $270 million of taxable various purpose GOs with a TIC of 0.9560%.
The Chicago Board of Education came to market with $295.68 million of unlimited tax GOs, consisting of $275.68 million of Series 2015C project bonds and $20 million of Series 2015E green bonds, backed by dedicated alternative revenues.
According to MMD, the BOE 5 1/4s at 5.53% in 2035 and the 5.63s in 2038 were +285 basis points over the MMD scale. The 6s at 5.38% in 2035 were +270 basis points over the scale. MMD added that that older issue BOE 5s near this date range traded nearly +250 basis points in the past few weeks.
PNC Capital Markets priced the Series 2015C bonds as a split maturity in 2035 as 5 1/4s to yield 5.53% and as 6s to yield 5.38%; a 2039 maturity was priced as 5 1/4s to yield 5.63%. The green bonds were priced as a 2032 bullet maturity as 5 1/8s to yield 5.42%.
Traders said the deal was oversubscribed despite a spate of negative headlines surrounding the district. The BOE is currently under federal investigation for the awarding of a no-bid contract. Despite the deal’s wide high yield appeal, market sources said that underwriters made no price changes.
The issue is rated A-minus by S&P, BBB-minus by Fitch and BBB-plus by Kroll Bond Rating Agency.
Since 1995, the Chicago BOE has sold roughly $8.12 billion of bonds. The highest years of issuance came in 2009 and 2010, when it issued $1.10 billion and $845 million of debt respectively. The Windy City BOE did not come to market at all in 1996-1999 or 2014.
Also Tuesday, the city of Phoenix, Ariz.’s Civic Improvement Corp. came to market on Tuesday with $319.31 million of Series 2015A subordinated excise tax revenue refunding bonds. The deal is rated Aa3 by Moody's and AA-plus by S&P.
Wells Fargo repriced the issue to yield from 0.71% with a 4% coupon in 2017 to 3.22% with a 5% coupon in 2037; a 2041 term bond was priced as 5s to yield 3.25%.
“All proceeds will either be used to pay off the callable bonds or be deposited into an escrow until the maturity or call date of the refunded bonds,” said city Treasurer Kathleen Gitkin.
Gitkin also said the bonds are refunding the corporation’s subordinated excise tax revenue bonds, Series 2005A, Series 2006A, Series 2007A and taxable Series 2006C bonds and the city’s Series 18 subordinated excise tax certificates of participation.
“The city has a diverse, vibrant and expanding economy, long-term economic development activity and prudent, proactive management,” said Gitkin. “The coverage on the excise tax lien is very strong. Since all excise tax revenues remaining after the payment of debt service go to the general fund, the city remains committed to maintaining these strong debt service coverage ratios.”
Secondary Market
Prices of top-shelf munis ended weaker on Tuesday. The yield on the 10-year benchmark muni general obligation rose one basis point to 1.95% from 1.94% on Monday, while the yield on the 30-year GO increased by two basis points to 2.86% from 2.84%, according to the final read of Municipal Market Data's triple-A scale. On Tuesday, April 14, the yield on the 10-year muni stood at 1.95% while the yield on the 30-year was at 2.82%.
Trading in the secondary was light to moderate, according to Interactive Data.
Treasury prices were mixed on Tuesday as the yield on the two-year Treasury note slipped to 0.52% from 0.53% from Monday, while the 10-year yield increased to 1.91% from 1.90% and the 30-year yield rose to 2.59% from 2.57%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 100.3% versus 102.6% on Monday, while the 30-year muni to Treasury ratio stood at 109.6% compared to 110.9%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $120.7 million to $11.750 billion on Tuesday. The total is comprised of $4.003 billion competitive sales and $7.747 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,824 trades on Monday on volume of $8.273 billion. The most active bond, based on the number of trades, was the Chicago Series 2012B taxable GO project and refunding 5.432s of 2042, which traded 167 times at an average price of 88.131 with an average yield of 6.361%. The bonds were initially priced at par to yield 5.432%.
