After a flood of new issuance hit the primary market yesterday, traders and market participants are now focused on the week’s first mega deal: $1.996 billion from Chicago’s O’Hare International Airport.
Muni yields were slightly higher at Tuesday’s close.
“An initial chance to bounce treasuries was stymied by a strong open on stocks,” said Randy Smolik, Municipal Market Data senior analyst. “Weaker than expected trade data was interpreted as another reason for the Fed to forestall rate hike plans. But, stocks gains turned flighty and treasuries found some footing. Munis followed treasuries lower initially then a large influx of primary pricings took focus off the secondary, still leaving some soft trading in longer serial range.”
And on Wednesday morning, top priced muni yields were stronger still, with yields on some maturities up by as much as two basis points.
Primary Market
The market shrugged off Tuesday's action with two mega deals coming in the next couple of days: JPMorgan is expected to price Chicago's O'Hare International Airport's $1.99 billion deal Wednesday and Wells Fargo is scheduled to price the Port Authority of New York and New Jersey's $2 billion deal Thursday.
The airport's finances are well-segregated from the troubles of Chicago’s government, but the city's general credit deterioration coupled with the mammoth size of the deal is likely to create yield penalties compared to similar revenue debt, market participants said.
"There is headline risk there: will O'Hare get hit with some of the burden? Yes. Is it fair? No, but life isn't fair. That is the way the market acts," said John Mousseau, executive vice president and director of fixed income at Cumberland Advisors. "That being said, O'Hare will be a good deal and the credit is very good, but it's an example of an issuer getting penalized at the margin for the city's problem."
According to a market source, the deal is being premarketed with a top yield of 4.53% in the $349.115 million Series A, a top yield of 3.79% in the $1.27 billion Series B and a top yield of 4.35% in the $195.14 million Series C bonds.
The O’Hare deal is rated A by Standard and Poor’s, A-minus by Fitch Ratings and A-plus by Kroll Bond Rating Agency.
The primary will also see $100 million-plus deals from two separate issuers in California Wednesday.
Wells Fargo Securities is expected to price the California infrastructure and economic development’s $349 million of tax-exempt fixed rate and floating rate notes for the Academy of Motion Picture Arts and Sciences.
The majority of bond proceeds will help fund $388 million in construction and programming costs for the 310,000-square-foot museum on the Los Angeles County Museum of Art's campus in the mid-Wilshire district.
The sale also refunds the academy's $35 million Series 2008 variable-rate bonds and terminates a $21 million fixed rate swap with Citi that had a negative $5.6 million valuation, according to a Moody's Investors Service report.
Moody's affirmed its Aa2 rating for the Academy's revenue bonds Sept. 25, but revised the Academy's outlook to negative from stable.
Standard & Poor's assigned the bonds an A rating with a stable outlook.
Elsewhere in the Golden State, the city and county of San Francisco will be competitively selling $127.98 million of refunding certificates of participation. The COPs are coming to market a day after the city by the bay competitively sold $226 million of general obligation bonds, which were won by Morgan Stanley with a true interest cost of 2.98%. The COPs are rated Aa3 by Moody’s, AA by S&P and AA-minus by Fitch.
Secondary Trading
Treasury prices were mostly weaker on Wednesday morning, with the yield on the two-year Treasury rising to 0.62% from 0.61% from Tuesday, while the 10-year yield increased to 2.07% from 2.06% and the 30-year yield stayed unchanged at 2.90%.
The yield on the 10-year benchmark muni general obligation opened Wednesday morning as much as one basis point higher from 2.01% at Tuesday’s close, while the 30-year GO rose by as much as two basis points from 3.05%, according to an early morning read of the Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Tuesday at 98.8% versus 97.6% on Monday, while the 30-year muni to Treasury ratio stood at 106.5% compared to 105.1%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,838 trades on Tuesday on volume of $7.234 billion.
Keeley Webster contributed to this report
