Prices of top-quality municipal bonds were slightly weaker at mid-day, according to traders with yields on some maturities strengthening as much as one basis point.
Traders and market participants saw a flood of new issuance starting to flow into the primary on Tuesday, as water deals from Washington D.C. and Texas hit screens, as well as a deal from the Massachusetts Development Finance Agency, among others.
Primary Market
Citi priced the Texas Water Development Board's $795.62 million of state water implementation revenue bonds, which is comprised of $783.64 million for Series 2015 A Master Trust and $11.98 million of Series B taxable bonds. The bonds were priced to yield from 0.75% with a 3% coupon in 2018 to 3.44% with a 4% coupon in 2035. A 2040 term bond was priced as 4s and as 5s in a split maturity to yield 3.63% and 3.23%, respectively. A 2045 term bond was priced as 4s and as 5s in a split maturity to yield 3.70% and 3.30%, respectively. A term bond in 2050 was priced as 4s to yield 3.82%. The 2016-2017 maturities were offered as a sealed bid.
The $11.98 million of taxable series b bonds were priced at par to yield from 0.45% in 2016 to 3.053% in 2025. The bonds were also priced at par in term bonds in 2030, 2035 and 2050, to yield 3.703%, 4.248% and 4.648%. The deal is rated triple-A by both S&P and Fitch Ratings.
Bank of America Merrill Lynch priced the District of Columbia Water and Sewer Authority's $350 million of public utility subordinate lien revenue bonds and green bonds, after a retail order period on Monday. The series 2015A green bonds for $100 million were priced to yield from 0.87% with a 3% coupon in 2018 to 2.56% with a 5% coupon in 2027. A 2045 term bond was priced as 4s to yield 3.75%.
The $250 million of Series 2015B were priced to yield from 2.70% with a 5% coupon in 2028 to 3.28% with a 5% coupon in 2037. A 2040 term bond was priced as 5s to yield 3.38%. A 2044 term bond was priced as 5s to yield 4.44%.The deal is rated Aa3 by Moody's, AA by Standard and Poor's and AA-minus by Fitch.
Citi also priced the Massachusetts Development Finance Agency's $234.245 million of revenue bonds, Series 2015F for the Lahey Health System Obligated Group. The bonds were priced as 5s to yield from 2.53% in 2024 to 3.54% in 2035. Term bonds in 2040 and 2045 were also priced as 5s, but to yield 3.73%, and 3.80%, respectively. The deal is rated A-plus by both Moody's and S&P.
JP Morgan priced the Industrial Development Authority of Wise Co. Va.'s $105 million of solid waste and sewage disposal revenue bonds, for the Virginia Electric and Power Company project. The bond was priced at par with a 2% coupon, with a mandatory put date of June 1, 2020. The deal is rated A2 by Moody's and A-minus by S&P.
In the competitive arena, Louisville and Jefferson County Metropolitan Sewer District, sold roughly $257.1 million in two separate series.
Series A of $175 million of sewer and drainage system revenue bonds was won by Bank of America Merrill Lynch with a true interest cost of 3.79%. The bonds were priced to yield from 0.52% with a 4% coupon in 2017 to 3.78% with a 4% coupon in 2040. A 2046 term bond was priced as 4s to yield 3.89%.
The Series B for $87.485 million of sewer and drainage system revenue refunding bonds was won by Hutchinson Shockey with a TIC of 3.26%. No other pricing information was immediately available.
The last time the district competitively sold bonds was Nov. 4, 2014, when it sold $80 million to Citi with a TIC of 3.81%.
Washington State sold $161.61 million of certificates of participation, Series 2015C for State and Local Agency Real and Person Property. JP Morgan won the bidding war with a TIC of 2.81%. The COPs were priced to yield from 0.24% with a 2% coupon in 2016 to 0.66% with a 5% coupon in 2017. They were also priced to yield from 0.93% with a 5% coupon in 2017 to 3.77% with a 4% coupon in 2038.
San Francisco sold $226 million of GO bonds. No pricing information was immediately available.
Tuesday's action will precede the mega deals that will be pricing on Wednesday and Thursday, when JPMorgan prices Chicago's O'Hare International Airport's $1.99 billion deal and Wells Fargo prices the Port Authority of New York and New Jersey's $2 billion deal.
The airport's finances are well-segregated from the troubles of the city 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 of Series A bonds, a top yield of 3.79% in the $1.27 billion of Series B bonds and a top yield of 4.35% in the $195.14 million of Series C bonds.
Since 1995, O'Hare has come to market with roughly $12.29 billion of debt. The years of 2005 and 2012 saw the highest issuance with $1.5 billion and $1.2 billion, respectively. The international airport did not come to market at all in 1997, 2000, 2004, 2007, 2009 and 2014.
Secondary Trading
The yield on the 10-year benchmark muni general obligation on Tuesday was as much as one basis point higher from 2.01% on Monday, while the yield on the 30-year GO was also higher by as much as one basis point from 3.05% on Monday, according to a read of the Municipal Market Data's triple-A scale.
Treasury prices were stronger on Tuesday morning, with the yield on the two-year Treasury dropping to 0.60% from 0.61% on Monday, while the 10-year yield dipped to 2.03% from 2.06% and the 30-year yield decreased to 2.88% from 2.90%.
The 10-year muni to Treasury ratio was calculated on Monday at 97.6% versus 99.9% on Friday, while the 30-year muni to Treasury ratio stood at 105.1% compared to 107.1%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 32,478 trades on Monday on volume of $3.761 billion.
