Long Muni Yields Up 10 bps; Chicago's O’Hare Deal Sells

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Top-shelf municipal bonds finished substantially weaker for longer maturities on Wednesday, according to traders, who saw several big deals hit the screens, led by Chicago's $1 billion O'Hare Airport offering.

The yield on the 10-year benchmark muni general obligation rose seven basis points to 2.52% from 2.45% on Tuesday, while the yield on the 30-year increased 10 basis points to 3.26% from 3.16%, according to the final read of Municipal Market Data's triple-A scale.

Bond prices eroded on a stronger-than-expected private payroll report and news that OPEC ministers agreed on a deal to cut oil production. The news fueled inflation concerns. U.S. equities rose to near-record levels, as energy companies surged.

The ADP Research Institute said private sector employment increased 216,000 in November. Economists surveyed by IFR Markets had expected a gain of 165,000 jobs for the month.

U.S. Treasuries were weaker in late trade. The yield on the two-year Treasury rose to 1.11% from 1.10% on Tuesday, the 10-year Treasury gained to 2.37% from 2.30%, while the yield on the 30-year Treasury bond increased to 3.01% from 2.95%.

The 10-year muni to Treasury ratio was calculated at 106.9% on Wednesday compared to 106.5% on Tuesday while the 30-year muni to Treasury ratio stood at 108.2% versus 107.2%, according to MMD.

 

Primary Market

Spreads on Wednesday's new issues were widened to entice muni buyers, some traders said.

"I would say in general, deals are being put away," said a Midwest trader. "It's a tricky environment to underwrite bonds in, but for the most part, dealers are doing what needs to be done to make sure they don't get left with any inventory."

Morgan Stanley priced and repriced Chicago's O'Hare International Airport's $1.11 billion of general airport senior lien revenue bonds in four series on Wednesday.

The $735.98 million of Series 2016D bonds, not subject to the alternative minimum tax, were repriced to yield from 1.99% with a 5% coupon in 2020 to 4.05% with a 5.25% coupon in 2037; a 2042 maturity was priced as 5 1/4s to yield 4.12%, a 2047 maturity was priced as 5s to yield 4.26% and a 2052 maturity was priced as 5s to yield 4.41%.

The $155.88 million of Series 2016E non-AMT bonds were priced to yield from 2.89% with a 5% coupon in 2024 to 3.48% with a 5.25% coupon in 2028.

The $155.96 million of Series 2016F non-AMT bonds were priced to yield from 1.33% with a 2% coupon in 2018 to 4.40% with a 4.25% coupon in 2037; a 2042 maturity was priced as 4 1/4s to yield 4.47%, a 2047 maturity was priced as 4 1/4s to yield 4.51% and a 2052 maturity was priced as 5s to yield 4.41%.

The $64.99 million of Series 2016G AMT bonds were priced to yield from 2.39% with a 5% coupon in 2020 to 4.15% with a 5.25% coupon in 2031; a 2037 maturity was priced as 5s to yield 4.48%, a 2042 maturity was priced as 5s to yield 4.55%, a 2047 maturity was priced as 5s to yield 4.61% and a 2052 maturity was priced as 5s to yield 4.76%.

"I thought the Chicago O'Hare deal came in and got a good response," said the Midwest trader. "At this point, it might be the best credit in Illinois and it easily got done."

The deal is rated A by S&P Global Ratings and Fitch Ratings except for the Series 2016F 2035-2047 maturities, which are insured by Build America Mutual and rated AA by S&P.

Barclays Capital priced the New Jersey Economic Development Authority's $970.7 million deal after it issued a premarketing scale on the bonds on Tuesday.

The $250 million of Series 2016AAA school facilities construction bonds were priced to yield 2.33% with a 5% coupon in 2018 to 5.12% with a 5% coupon in 2036; a 2041 maturity was priced as 5s to yield 5.18%.

The $544.29 million of Series 2016BBB school facilities construction refunding bonds were priced as 5s to yield from 3.58% in 2021 to 3.96% in 2029 and as 5 1/2s to yield 4.76% in 2029 and 4.84% in 2030 and as 5 1/2s to yield 4.90% and 4 3/4s to yield 5% in a split 2031 maturity.

The deal is rated A3 by Moody's Investors Service, BBB-plus by S&P and A-minus by Fitch.

"The N.J. EDA deal went well, as presale levels from [Tuesday] held up even with Treasuries off substantially today," said a New York trader on Wednesday. "In general, it feels to me that most of the bloodletting has ended and buyers are reappearing."

Since 2006, the N.J. EDA has sold roughly $21.4 billion of securities, with the largest issuance occurring in 2008, when it issued $3.22 billion. The EDA has sold over $1 billion in every year since 2006, with the exception of 2009 when it issued $850 million. During that span, the authority has issued over $2 billion a year six times.

Barclays also priced the District of Columbia's $590.32 million of general obligation bonds after it issued a premarketing scale on the deal Tuesday.

The $399.39 million of Series 2016D GOs were priced to yield from 1.55% with a 3% coupon in 2019 to 3.51% with a 5% coupon in 2036; a 2041 maturity was priced as 5s to yield 3.60%. The $190.93 million of Series 2016E refunding GOs were priced as 5s to yield from 1.24% in 2018 to 2.93% in 2027, 3.28% in 2031, 3.35% in 2032 and 3.41% in 2033. The bonds are rated Aa1 by Moody's and AA by S&P and Fitch.

Raymond James & Associates priced the New York City Municipal Water Finance Authority's $415.65 million of Fiscal 2017 Series CC water and sewer system second general resolution revenue bonds for institutions after it held a retail order period on Tuesday. Rice Financial Products was joint leader manager with Barclays and Siebert Cisneros Shank & Co. serving as co-senior managers on the transaction.

The $327.31 million of Subseries CC-1 bonds were priced for institutions as 5s to yield 3.71%, as 4s to yield 4.07% and as 5 1/4s to yield 3.61% in a triple-split 2046 maturity. The $88.34 million of Subseries CC-2 bonds were priced as 5s to yield 2.10% in a 2023 bullet maturity. The deal is rated Aa1 by Moody's and AA-plus by S&P and Fitch.

In the competitive arena on Wednesday, Massachusetts sold $600 million of consolidated loan of 2016 general obligation bonds in three separate offerings.

Bank of America Merrill Lynch won the $300 million of Series J GOs with a true interest cost of 4.11%. The issue was priced to yield from 3.42% with a 5% coupon in 2036 to 4% at par in 2040 and priced as 4s to yield 4.06% in 2045 and 4.07% in 2046.

Citigroup won the $150 million of Series I GOs with a TIC of 3.67%. The issue was priced as 5s to yield from 2.82% in 2027 to 3.34% in 2035.

Goldman Sachs won the $150 million of Series H GOs with a TIC of 2.61%. The issue was priced as 5s to yield from 2.20% in 2022 to 2.79% in 2026.

All three sales are rated Aa1 by Moody's and AA-plus by S&P and Fitch.

Montgomery County, Md., competitively sold $340 million of consolidated public improvement general obligation bonds of 2016 Series A.

Citi won the Series A GOs with a TIC of 3.28%. The issue was priced to yield from 0.95% with a 5% coupon in 2017 to 3.72% with a 4% coupon in 2036. The deal is rated triple-A by Moody's, S&P and Fitch.

The county's $96 million of Series B refunding GOs, originally slated for sale on Wednesday, was postponed.

 

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