Top-quality municipal bonds ended steady to stronger on Wednesday, traders said, as they welcomed a $428 million deal that came to market from an issuer in the Aloha State.
Bank of America Merrill Lynch priced Honolulu City and County, Hawaii's $384.01 million of first bond resolution Senior Series 2016A wastewater system revenue bonds and Senior Series 2016B wastewater system revenue refunding bonds and $44.04 million of taxable Senior Series 2016C first bond resolution wastewater system revenue refunding and taxable Junior Series 2016A second bond resolution wastewater system revenue refunding bonds.
The $214.04 million of senior Series 2016A bonds were priced to yield from 0.57% with a 5% coupon in 2018 to 2.24% with a 5% coupon in 2036; a 2041 term bond was priced at par to yield 3% and a 2046 term was priced as 3s to yield 3.05%.
The $169.97 million of Series 2016B senior bonds were priced to yield from 1.13% with a 5% coupon in 2022 to 2.26% with a 5% coupon in 2037.
The $14.35 million of taxable Series 2016C senior bonds were priced at par to yield from 0.80% in 2017 to 2.20% in 2024, and at 2.50% in 2026 and 2.60% in 2027.
The $29.7 million of taxable Series 2016A junior bonds were priced at par to yield from 0.85% in 2017 to 2.20% in 2023.
The deal is rated Aa2 by Moody's Investors Service and AA by Fitch Ratings.
Since 2006, the issuer has sold $6.26 billion of securities, with the largest sales in 2015 when it offered $1.59 billion. Honolulu only issued more than $1 billion one other time in that period, in 2012, which was followed by a two-year absence from the market.
In the competitive arena, the Louisville and Jefferson County Visitors and Convention Commission, Ky., sold $138.59 million of Series 2016 dedicated tax revenue bonds. BAML won the bonds with a true interest cost of 3.22%.
The issue was priced to yield from 1% with a 3% coupon in 2017 to 3.35% with a 4% coupon in 2036; a 2041 term was priced as 3 1/8s to yield approximately 3.24% and a 2046 term was priced as 3 1/8s to yield about 3.20%.
The deal is rated A2 by Moody's and A by S&P Global Ratings except for the $36.46 million of the 2046 maturity which is insured by Assured Guaranty Municipal and rated A2 by Moody's and AA by S&P.
Citi Sees Robust Issuance Near-Term
After municipal bond issuance dropped 27% in July compared to July 2015, it has started to pick up again, according to new report from Citi Research.
"Now that the extreme market volatility following the Brexit event, which led to whip-sawing yields, is behind us, we expect the forward issuance calendar to stay robust," Citi analysts Vikram Rai and Jack Muller wrote in the report. "Our estimate for gross issuance for 2016 remains unchanged at $413 billion, split almost evenly between new money and refundings."
Citi said that despite the dramatic fall in supply last month, year-to-date issuance is off only about 1.6%, mostly due to the large volume gains in May (13.5% year over year) and June (17.6% year over year).
Secondary Market
Municipal and Treasury bonds turned higher on the long end after the release of the minutes from the July meeting of the Federal Open Market Committee meeting.
The minutes indicated some voting members think an interest rate hike may be needed soon – but that it was "prudent" to see more data before they would vote for a rise.
The yield on the 10-year benchmark muni general obligation ended unchanged from 1.41% on Tuesday, while the yield on the 30-year muni dropped one basis point to 2.13% from 2.14%, according to the final read of Municipal Market Data's triple-A scale.
The yield on the two-year Treasury dropped to 0.73% from 0.74% on Tuesday, the 10-year Treasury yield declined to 1.56% from 1.57% and the yield on the 30-year Treasury bond decreased to 2.27% from 2.29%.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,125 trades on Tuesday on volume of $9.87 billion.
