Top-quality municipal bonds ended unchanged on Tuesday, according to traders, as the biggest deal of the week was priced for institutions.
JPMorgan Securities priced and repriced the state of California's $2.69 billion of various purpose general obligation and GO refunding bonds for institutions after a one-day retail order period.
The $615 million of GOs were priced and then repriced to yield from 0.50% with a 5% coupon in 2017 to 1.63% with a 5% coupon in 2026. The bonds were also repriced as 2s to yield from 2.03% and as 5s to yield 1.85% in a split 2028 maturity and as 5s to yield 1.99% in 2030. A term bond in 2046 was priced as 3s to yield 3.05%, as 4s to yield 2.58% and as 5s to yield 2.28% in a triple-split maturity.
The $2.08 billion of GO refunding bonds were priced to yield from 0.45% with a 5% coupon and 0.50% with a 5% coupon in a split 2017 maturity to 2.55% with a 4% coupon and a 5% coupon in a split 2037 maturity.
"The longer part of the loan was priced fairly attractively, although it looked like there were some balances left in the belly and will get bumped," said a New York trader.
The issue is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
The deal marks the second time this year the Golden State has issued a multi-billion dollar bond deal. In March, the state sold $2.95 billion of GOs, in the largest bond deal of 2016. Buyer demand drove the state to increase the size of that sale by about $600 million.
Since 2006, the state has sold about $97.68 billion of debt, with the largest issuance occurring in 2009 when it sold about $23.18 billion of bonds. In the same amount of time, the lowest amount it has issued in a year was 2006, when it came to market with $4.58 billion.
The New York trader went on to say that because Federal Reserve Chair Janet Yellen's speech last Friday "didn't really clear anything up," regarding the Fed's timing on raising interest rates, so everyone is now focused on this Friday's unemployment report for August.
"The market was waiting for her to lend direction and she didn't," the trader said. "So that didn't help."
Also on Tuesday, Bank of America Merrill Lynch priced and repriced the Illinois Finance Authority's $500 million of Series 2016 state clean water initiative revolving fund revenue bonds.
The issue was repriced to yield from 0.55% in 2017 to 2.58% with 4% coupons in a split 2036 maturity. The deal is rated triple-A by S&P and Fitch.
The IFA's state revolving fund bonds set the stage for low-cost loans for clean water and drinking water projects.
Wells Fargo Securities priced the Arizona Board of Regents' $226.13 million of Series 2016B green bond and Series 2016C system revenue bonds.
The $130.43 million of Series 2016B system revenue green bonds were priced to yield from 0.56% with a 3% coupon in 2017 to 2.34% with a 5% coupon in 2038; a 2042 maturity was prices as 5s to yield 2.40% and a 2047 maturity was priced as 5s to yield 2.43%.
The $95.7 million of Series 2016C system revenue bonds were priced to yield from 0.65% with a 3% coupon in 2018 to 2.34% with a 5% coupon in 2038; a 2042 maturity was priced as 5s to yield 2.40% and a 2046 maturity was priced as 5s to yield 2.42%.
The deal is rated Aa3 by Moody's and AA by S&P.
In the competitive arena, the state of Louisiana sold $161.53 million of Series 2016D GOs on Tuesday.
BAML won the deal with a true interest cost of 2.66%. The issue was priced to yield from 0.64% with a 5% coupon in 2017 to 2.75% with a 4% coupon in 2036.
The deal is rated Aa3 by Moody's, AA by S&P and AA-minus by Fitch.
On Wednesday, Barclays Capital Markets is scheduled to price the Minneapolis-St. Paul Metropolitan Airports Commission's $542.13 million of senior airport revenue refunding non-alternative minimum tax and subordinate airport revenue refunding non-AMT bonds.
The senior bonds are rated AA-minus by both S&P and Fitch, while the subordinate bonds are rated A-plus by S&P and Fitch.
Jefferies is set to price the Pennsylvania Housing Finance Agency's $255 million of Series 2016-121 single-family mortgage revenue bonds on Wednesday. The deal is rated Aa2 by Moody's and AA-plus by S&P.
Citi Sees 'Lumpy' Issuance Ahead
Municipal bond issuance fell 27% in July compared to the same month last year, but has since picked up, with supply for the week ending Aug. 26 being 57% higher than the trailing three-year average for same period, according to a report from Citi Research.
"We expect the forward issuance calendar to stay robust in terms of both refundings and new money issuance and expect $8.2 billion gross in issuance over the next week," Citi analysts Vikram Rai and Jack Muller wrote in Tuesday's market report. "Our estimate for gross issuance for 2016 remains unchanged at $413 billion split almost evenly between new money and refundings."
Federal Reserve Chair Janet Yellen's message last week from the Fed's meeting in Jackson Hole was economic developments may point to a stronger case for resuming normalization, the report said, adding that while Yellen gave no hints about the timing of an interest rate kike, some Fed participants suggested that a September rise was a real possibility.
"While a hike in 2016 is back on the table, in our experience, issuers typically want to avoid issuance around Fed meetings as they would rather avoid rate volatility," they wrote. "Thus, if anything, the probability of a live Fed meeting would cause issuance to become a little lumpier, if you will. Our net issuance expectation for September $5.2 billion which is markedly higher vs. trailing three-year averages."
Secondary Market
The yield on the 10-year benchmark muni general obligation on Tuesday was unchanged from 1.42% on Monday, while the yield on the 30-year was steady at 2.12%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were little changed on Tuesday. The yield on the two-year Treasury fell to 0.80% from 0.81% on Monday, the 10-year Treasury yield rose to 1.57% from 1.56% and the yield on the 30-year Treasury bond increased to 2.23% from 2.22%.
The 10-year muni to Treasury ratio was calculated at 90.6% on Tuesday compared to 90.7% on Monday, while the 30-year muni to Treasury ratio stood at 94.9% versus 95.7%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,509 trades on Monday on volume of $7.98 billion.
