Investors Call 30-Plus Maturities Attractive — at the Right Price

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Buyers showed a willingness to go long as $394.42 million New York City Municipal Water Finance Authority's bonds and $205.43 million Hospital Authority of Hall County and the City of Gainesville revenue anticipation certificates came to market Thursday.

Traders had said the longer maturities in the two deals might be hard to sell, because investors have shifted towards purchasing bonds with short to medium maturities. A trader in New York said maturities of 30 years or longer might encounter some problems, because retail investors have started buying predominantly in the 20-year and under range. Retail buyers typically boost the performance of New York City deals because New York is a high tax state.

A second trader in New York also pointed out issuing a bond with a maturity longer than 30 years is mainly beneficial for the issuer because it can lock in the current low interest rates, leaving buyers with a bit less yield.

The 30-plus maturities in both deals were priced at levels so appealing to buyers that traders went as far to call the securities "very attractive."

The long maturities' ability to draw in buyers can best be seen in the NYC Water deal. Bonds from the deal including ones from the 2045 maturity were available for retail order on Wednesday, but traders expressed doubts about the appeal of those bonds to retail and the deal team raised the yield on those bonds by five basis points to 3.57% on Thursday morning.

A third trader in New York said the underwriters of the NYC Water deal may have raised the yields to make sure they would get business from institutional investors after the retail order period produced fewer orders than they expected. The deal team "had to make a price adjustment for the bonds to be in line with the market," he said.

Investors said the higher yield was attractive and pointed to the fact the NYC Municipal Water Finance Authority water and sewer system second general resolution revenue 4s in 2045 are one of the most actively traded Cusips in the secondary according to EMMA as proof of the newly priced 2045s draw.

They said the high trading activity on the NYC Water 2045s in the secondary market likely means investors are trying to exit that trade and buy the 5s in 2045 or the 4s in 2045 currently up for grabs in the primary.

The 4s in 2045 that are trading in the secondary are trading between a high yield of 3.92% and a low yield of 3.48%, meaning their price ranged from 100.631 to 104.186.

The third trader in New York said this price seemed high for that maturity, especially if there are more attractively priced bonds with the same maturity from the same issuer available in the primary.

The 5s in 2045 in the primary were priced with a yield of 3.57% or 111.503, and the 4s in 2045 were priced at 100.75.
Midway through the day the deal team repriced the new NYC Water bonds with lower yields.

Yields were decreased by one basis point on the 2045 maturity to 2.56%, and by two basis points on the earlier maturities in the deal.

Yields on the bonds ranged from 2.80% with a 5% coupon in 2028 to 3.56% with a 5% coupon in 2045.

Investors said this means traders were interested in all the NYC Water bonds, even the final maturity.

The $205.43 million Hospital Authority of Hall County and the City of Gainesville revenue anticipation certificates also show buyers' appetite for longer maturities if they are priced at desirable levels.

The deal only has three maturities in 2046, 2049 and 2054. Yields were 4.18% with a 4% coupon in 2046, 3.95% with a 5.25% coupon in 2049, and 4.02% with a 5.50% coupon in 2054.

The first trader in New York and a trader in the Midwest said those levels were more than sufficient to draw interest.
"The yields actually look very attractive; the deal will do fine," the first trader in New York said.

The bonds can be called at par in 2025. Bank of America Merrill Lynch is the lead underwriter.

The bonds were rated AA-minus by S&P and Fitch.

For the NYC Water deal the bonds have an optional call in 2024, and earned ratings of Aa2 from Moody's Investors Service and AA-plus from Standard & Poor's and Fitch Ratings.

Ramirez & Co. was the managing underwriter on the deal.

Scales

Municipal bonds held steady across the curve on Thursday, according to Municipal Market Data's triple-A scale.

Treasuries strengthened with the two-year note yield falling by two basis points to 0.53%, the 10-year yield dropped by one basis point to 2.36%, and the 30-year by one basis point to 3.08%.

Municipal Market Funds

Tax-exempt money market funds reported inflows as $859.4 million of new cash entered the industry in the week ended Nov. 10 and total net assets increased to $252.51 billion, according to The Money Fund Report, a service of iMoneyNet.com.

The inflows followed losses of $992.5 million in the week ended Nov. 3, and $2.93 billion in the week ended Oct. 27.

The average seven day yield for the 409 weekly reporting tax-exempt money funds was unchanged at 0.01%, while the average maturity grew one day to 41 days compared to the prior week.

Taxable money market funds reported inflows of $8.84 billion as total net assets climbed to $2.412 trillion in the week ended Nov. 11, which is up from the prior week given the arrival of $1.80 billion of inflows.

The average seven day yield for the 997 weekly reporting taxable money market funds remained at 0.01%, while the average maturity remained at 46 days.

Overall, the combined total net assets of the 1,406 weekly rose to $2.664 trillion after reported inflows of $9.7 billion in the week ended Nov. 11, which is a significant reversal from the $804.6 million of inflows in the prior week.

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