Top flight municipal bonds weakened Wednesday, as traders said yields rose by as many as 7 basis points amid a flood of bond sales that included roughly 10% of the week's issuance in one deal.
Primary Market
On Wednesday, Goldman Sachs priced the biggest deal of the week for the Massachusetts Development Finance Agency.
"The market is cheaper right now, and there is a reasonable amount of supply and it is getting absorbed," said a New York trader. "On paper we have outperformed, but it feels like the scale is too high. But that's the dynamic of what is happening."
Goldman priced and then repriced the DFA's $1.55 billion of Series 2016A revenue bonds for Harvard University. The bonds were repriced to yield from 0.90% with a 4% coupon and 5% coupon in a split 2019 maturity to 2.07% with a 5% coupon in 2031. The bonds were also repriced to yield from 2.18% with a 5% coupon in 2033 to 2.23% with a 5% coupon in 2034. A term bond in 2036 was priced to yield 2.58% with a 4% coupon and 2.63% with a 5% coupon in a split maturity and a term bond in 2040 was priced to yield 2.73% with a 5% coupon. The deal is rated triple-A by Moody's Investors Service and S&P Global Ratings.
"It got bumped," the trader said. "What is a better proxy for a triple-A than Harvard? And it was 12 points cheaper, so what does that say about the scale?"
The yield on the Harvard deal fell mostly by two to three basis points when it was repriced; the top yield was shaved two points.
MMD reported that that final yield was 43 basis points over the MMD scale due to a make-whole call provision.
Citi priced the Dormitory Authority of the State of New York's $1.1 billion of personal income tax revenue bonds for retail investors, prior to institutional pricing on Thursday. The bonds were priced for retail to yield from 0.99% with a 3% coupon and 5% coupon in a split 2019 maturity to 3.07% with a 3% coupon in 2038. No retail orders were taken in the 2028 through 2030 maturities, 2032 through 2035 or 2037. The deal is rated Aa1 by Moody's and triple-A by S&P.
Loop Capital Markets priced the California State Public Works Board's $527.54 million of Series 2016 C&D various projects lease revenue refunding bonds for institutions, after a one-day retail order period.
For institutions, the $313.2 million of Series 2016C bonds were priced to yield from 1.11% with a 5% coupon in 2020 to 2.56% with a 5% coupon in 2034. The $214.3 million of Series 2016D bonds were priced to yield from 0.83% with a 3% coupon in 2017 to 2.81% with a 4% coupon and at par with a 3% coupon in a split 2034 maturity.
For retail, the $313.2 million of Series 2016C bonds had been priced as 5s to yield from 1.09% in 2020 to 2.49% in 2034. The $214.34 million of Series 2016D bonds had been priced to yield from 0.86% with a 3% coupon in 2017 to 2.74% with a 4% coupon and at par with a 3% coupon in a split 2034 maturity.
The bonds are rated A1 by Moody's and A-plus by S&P and Fitch Ratings; the issue carries stable outlooks from all three agencies.
Morgan Stanley priced the Tarrant County Cultural Education Facilities Finance Corp., Texas' $636.72 million of Series 2016A revenue bonds for the Texas Health Resources System. The bonds were priced to yield from 1.70% with a 5% coupon in 2024 to 1.98% with a 5% coupon in 2026. The bonds were also priced to yield from 2.66% with a 5% coupon in 2034 to 3.10% with a 4% coupon and at par with a 2.25% coupon in a split 2036 maturity. A term bond in 2041 was priced to yield 2.86% with a 5% coupon and a term bond in 2047 was priced to yield 3.51% with a 3.25% coupon, 3.31% with a 4% coupon and 2.91% with a 5% coupon in a triple-split maturity.
Citi priced the San Antonio Water System's$300.345 million of junior lien revenue and refunding bonds. The bonds were priced to yield from 1.02% with a 3% coupon in 2019 to 2.97% with a 4% coupon in 2038. A term bond in 2041 was priced to yield 2.71% with a 5% coupon and a term bond in 2046 was priced to yield 2.76% with a 5% coupon. The deal is rated Aa2 by Moody's and AA by S&P and Fitch.
Bank of America Merrill Lynch priced and repriced the city and county of Honolulu's $222.05 million of GOs. The $86.835 million of Series 2016A bonds were priced to yield from 0.97% with a 3% coupon in 2018 to 3.16% with a 3% coupon in 2041. The $37.24 million of Series 2016B bonds were priced to yield from 0.86% with 3% coupon in 2017 to 1.56% with a 4% coupon in 2024. The $97.975 million of Series 2016C bonds were priced to yield from 1.22% with a 5% coupon in 2021 to 2.66% with a 4% coupon in 2034. The deal is rated Aa1 by Moody's and AA-plus by Fitch.
BAML also priced the city of Syracuse, N.Y., Industrial Development Agency's $200.13 million of tax-exempt refunding pilot revenue bonds for the Carousel Center Project. The bonds were priced to yield from 1.41% with a 3% coupon in 2018 to 2.44% with a 3% coupon in 2024. The bonds were also priced to yield 2.87% with a 3% coupon in 2024 and from 2.87% with a 5% coupon in 2028 to 3.30% with a 5% coupon in 2036. The deal is rated Baa1 by Moody's and A-minus by Fitch.
Raymond James priced the Garland Independent School District, Texas's $150.25 million of unlimited tax school building bonds, to yield from 0.85% with a 2% coupon in 2017 to 2.68% with a 4% coupon in2036. The deal is backed by the Permanent School Fund Guarantee Program and is rated triple-A by Moody's and Fitch.
In the competitive arena on Wednesday, Wisconsin sold about $325 million of Series 2016D general obligation bonds, which were won by BAML with a true interest cost of 2.99%. The bonds were priced to yield from 0.88% with a 5% coupon in 2018 to 2.32% with a 5% coupon in 2037. The deal is rated Aa2 by Moody's and AA by both S&P and Fitch.
Also in the Midwest, Minneapolis, Minn., competitively sold $120 million of Series 2016 GO improvement and various purpose bonds, which were won by Morgan Stanley with a TIC of 1.46%. The bonds were priced to yield from 0.82% with a 2% coupon in 2017 to 1.90% with a 2% coupon in 2026. The deal is rated Aa1 by Moody's and triple-A by S&P and Fitch.
Since 2006, Minneapolis has issued roughly $2.6 billion of bonds with the largest issuance occurring in 2008 when it sold $818 million of debt. During the same period, the City of Lakes sold the least amount of debt in 2007, when it issued $100.4 million of bonds.
"Munis were caught a bit off guard by not only the size of the calendar this week but by the backup in treasuries at the same time," said another New Yorkl trader. "Combine that with deals back loaded to Wednesday and Thursday instead of normal Tuesday and Wednesday schedules and then throw in the NFP release Friday and you have a recipe for a very cautious market."
He added that the market needed to get cheaper to attract the buyers and it has. Now it's all going to depend on the direction of interest rates, he said.
Secondary Market
The yield on the 10-year benchmark muni general obligation was five basis points higher to 1.60% from 1.55% on Tuesday, while the yield on the 30-year rose seven basis points to 2.43% from 2.36%, according to a final read of Municipal Market Data's triple-A scale.
Treasuries were also weaker at Wednesday's close. The yield on the two-year Treasury rose to 0.84% from 0.82% on Tuesday, the 10-year Treasury yield gained to 1.71% from 1.69% and the yield on the 30-year Treasury bond increased to 2.43% from 2.42%.
On Wednesday, the 10-year muni to Treasury ratio was calculated at 93.3% compared to 92.2% on Tuesday, while the 30-year muni to Treasury ratio stood at 99.8% versus 98.2%, according to MMD.
