Long Muni Yields Off 9 bps; NYC GOs Priced for Institutions

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Top-rated municipal bonds finished stronger on Tuesday, according to traders, with yields on longer maturities falling by as much as nine basis points. It was the third session in a row that yields dropped.

The trend reversal after weeks of rising yields caused some issuers to hit the gas, while others hit the brakes, as they looked to secure the best prices amid the volatility.

The yield on the 10-year benchmark muni general obligation declined eight basis points to 2.43% from 2.51% on Monday, while the yield on the 30-year decreased nine basis points to 3.23% from 3.32%, according to the final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year Treasury was unchanged from 1.12% on Monday, the 10-year Treasury rose to 2.39% from 2.38%, while the yield on the 30-year Treasury bond increased to 3.08% from 3.05%.

The 10-year muni to Treasury ratio was calculated at 101.6% on Tuesday compared to 105.2% on Monday while the 30-year muni to Treasury ratio stood at 104.9% versus 108.8%, according to MMD.

 

Primary Market

New York City came to market on Tuesday with over $1 billion of general obligation bonds in negotiated tax-exempt and competitive taxable offerings, in a sale traders said met with good demand.

On Tuesday, Jefferies priced and repriced NYC's $805.12 million of Fiscal 2008 and 2017 tax-exempt bonds for institutions after holding a one-day retail order period, which was originally slated to be two days.

The city said its tax-exempt GOs met with an exceptionally strong market reception.

"After the first day of a planned two-day retail order period, the city had over $450 million of retail orders, of which about four-fifths were usable (net of oversubscriptions). Based on this, the city decided to accelerate the institutional pricing … almost $3.5 billion of orders were received during the institutional pricing period," the city said in a statement.

The strong buyer demand let the city lower interest rates on almost all maturities by between three and 12 basis points.

"Over the past few weeks, we've seen a consistently difficult municipal market," New York City Comptroller Scott Stringer told The Bond Buyer. "That's why I'm especially pleased investors recognized the value in the New York City GO credit and gave us this great result."

Bond traders agreed.

"Due to the changing psychology of the market, New York [City] closed down retail immediately and pushed it to institutional investors," said a New York trader. "It also pushed the spread by 25 basis points – it was very well-received."

The $650 million of Fiscal 2017 Subseries B-1 bonds were repriced for institutions on Tuesday to yield from 1.33% with a 4% coupon in 2018 to 3.64% with a 5% coupon in 2038. A 2041 maturity was priced as 5s to yield 3.67% and a 2043 maturity was priced as 4s to yield approximately 4.06%.

The $66.945 million of Fiscal 2008 Subseries J-7 bonds were repriced to yield 1.86% with 4% and 5% coupons in a split 2020 maturity and 2.12% with 4% and 5% coupons in a split 2021 maturity.

The $88.175 million of Fiscal 2008 Subseries J-9 bonds were repriced to yield 2.77% with 4% and 5% coupons in a split 2025 maturity, 2.89% with 3% and 5% coupons in a split 2026 maturity, and 2.97% with 3% and 5% coupons in a split 2027 maturity.

New York's competitive deals were also moved up by a day, with the city selling $200 million of taxable GOs in two separate offerings on Tuesday.

JPMorgan Securities won the $149.915 million of Fiscal 2017 Subseries B-2 taxable GOs with a true interest cost of 2.915%. JPMorgan also won the $50.085 million of Fiscal 2017 Subseries B-3 taxable GOs with a TIC of 3.531%. Pricing information was not available on the sales.

All the deals are rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.

Since 2006, NYC has sold roughly $49.6 billion of securities, with the largest issuance occurring in 2008, when they sold $6.6 billion. The city that never sleeps has sold more than $2 billion every year since 2006, and sold more than $5 billion in a year five times during the same period of time

Due to the volatile rate environment, the Massachusetts Department of Transportation's sale of $445 million of Series 2016A metropolitan highway system senior revenue refunding bonds and $197 million of Series 2016A metropolitan highway system revenue refunding bonds, subordinated commonwealth contract assistance secured, were placed on day-to-day status.

On Monday, the New Jersey Environmental Infrastructure Trust postponed its $109.39 million competitive sales of $34.41 million of Series 2016A-R3 green refunding bonds, 2009A financing program and $74.98 million of Series 2016A-R4 refunding green bonds, 2010A financing program. No new date for sales have been announced.

A Southwest trader said that all the deals he was familiar got a great reception.

"The buy side just opened their wallets," he said. "The deals were multiply oversubscribed. We just got to a point where the market backed up until the yields were attractive."

William Blair & Co. priced Connecticut's $327.65 million of Series 2016G GO refunding bonds on Tuesday for institutions after holding a one-day retail order period on Monday.

The issue was priced to yield from 1.62% with 2%, 3%, 4% and 5% coupons in a quadruple-split 2018 maturity to 2.79% with a 3% coupon in 2023. A 2017 maturity was offered as a sealed bid.

The deal is rated Aa3 by Moody's and AA-minus by S&P, Fitch and Kroll Bond Rating Agency.

Another market source noted the Connecticut deal also came away a winner.

"I know they had orders for almost half the deal after [Monday's] retail order period and for [Tuesday's] final pricing, they lowered yields on all maturities 2019 and out – two basis points in 2019 and 2020, seven basis points in 2021, three basis points in 2022 and 2023, so demand was strong," he said.

Citigroup priced the state of Mississippi's $190.64 million of Series 2016B tax-exempt GOs. The issue was priced as 5s to yield from 2.66% in 2025 to 3.45% in 2036. The deal is rated Aa2 by Moody's and AA by S&P and Fitch.

Wells Fargo Securities priced the Minneapolis-St. Paul Metropolitan Airports Commission's $171.71 million of taxable Series 2016E subordinate airport revenue bonds. The issue was priced at par to yield 1.72% in 2019 to 4.246% in 2034. The deal is rated A-plus by S&P and Fitch.

In the competitive arena on Tuesday, Portland, Ore., sold $168.53 million of Series 2016A first lien water system revenue and refunding bonds.

JPMorgan won the deal with a TIC of 3.24%. The issue was priced to yield from 0.75% with a 2% coupon in 2017 to 3.70% with a 4% coupon in 2041. The deal is rated triple-A by Moody's.

 

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