Municipal bond prices strengthened as market absorbed some of the last of the big issues of the week on Tuesday. Yields on high-quality municipal bonds tightened, according to Municipal Market Data.
"An Apparent Moral Victory"
As the year winds down, many market participants are relieved to see that many dire predictions for muni supply made at the end of last year didn't come to pass and are looking ahead to 2015.
"Municipal new issue volume began the year on an apocalyptic note, with January volume down a little over 30% on a year-over-year basis. The severe pain persisted through mid-year until a hearty July volume of $37 billion reversed the tide and year-over-year comparisons began to improve," Chris Mier, managing director at Loop Capital Markets, wrote in his latest municipal strategy report. "As we close in on year-end, volume, despite the pernicious impact of direct bank buying, will decline less than 10% from 2013, an apparent moral victory."
And looking ahead to 2015, some are predicting a slight increase in new issuance over this year's volume.
"The backdrop for issuance over the next 12 months looks, to us, very similar to the one we faced last year at this time," Chris Mauro, head of municipals strategy at RBC Capital Markets, said in a report. "As a result, we are projecting a modest increase in volume in 2015 to $335 billion, compared to an estimated $328 billion in issuance this year.
"Our projection is based on what we believe will be continued caution on the part of state and local governments to undertake major capital spending programs, a pool of refunding candidates that looks to be about the same size as 2014's group, and an expectation, once again, of rising interest rates in 2015."
Loop also sees volume for next year at about $335 billion.
"Volume continues to be adversely impacted by a political lack of interest in financing infrastructure, continued slow progress in the restoration of state fiscal health with modest revenue recovery and significant strains from pension burdens, the elimination of much of the backlog of available advance refunding, a limited amount of current refundable paper from the 2005 vintage, and the syphoning of volume away from public markets through direct placements with banks," according to Mier.
In the past five years, volume totaled $433.3 billion in 13,828 issues in 2010; $287.7 billion in 10,574 issues in 2011; $379.6 billion in 13,115 issues in 2012; and $333.8 billion in 11,478 issues in 2013; and an estimated $295.5 billion in 9,824 issues has been priced in 2014 as of Dec. 9.
Primary Market
Bank of America Merrill Lynch priced the New York State Dormitory Authority's $494.805 million tax-exempt and taxable personal income tax revenue bond deal for institutions after a retail order period on Monday.
DASNY's $467.915 million of tax-exempt Series E bonds were priced as serials to yield from 0.52% with a 3% coupon in 2017 to 3.34% with a 4% coupon in 2035; a 2039 term maturity was split and priced as 5s to yield 3.14% and as 4s to yield 3.49% while a 2044 term was priced as 5s to yield 3.24%. The 2015-2016 maturities were offered as sealed bids. The $26.89 million of taxable Series F bonds were priced to yield from 0.62% with a 3% coupon in 2017 to 3.56% with a 3.5% coupon in 2035; a 2039 term was split and priced as 4s to yield 3.59% and as 5s to yield 3.29%; a 2016 maturity was offered as a sealed bid. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
Siebert Brandford Shank priced $229 million of Los Angeles Department of Water and Power revenue bonds. The bonds were priced as serials to yield from 1.08% with a 5% coupon in 2019 to 2.91% with a 5% coupon in 2035; a 2039 term was priced as 5s to yield 3.05% and a 2044 term was priced as 5s to yield 3.15%. The issue is rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's and Fitch Ratings.
Citigroup Global Markets priced the Arizona Transportation Board's $376.2 million of highway revenue refunding bonds. The bonds were priced to yield from 0.30% with a 3% coupon in 2016 to 2.74% with a 5% coupon in 2033; a 2015 maturity was offered as a sealed bid. The issue is rated Aa1 by Moody's and triple-A by S&P.
Morgan Stanley priced the Arizona Health Facilities Authority's $304.325 million of revenue bonds for the Scottsdale Lincoln Hospitals. The bonds were priced to yield from 0.70% with a 3% coupon in 2016 to 3.44% with a 5% coupon in 2034. A split 2039 maturity was priced as 4s to yield 4.12% and as 5s to yield 3.61%; a 2039 Step Coupon maturity was priced at par to yield 2.75%; a 2042 maturity was priced as 5s to yield 3.69%; and a 2015 maturity was offered as a sealed bid. The issue is rated A2 by Moody's and A by Fitch.
Secondary Market
High-grade municipal bond prices firmed on Tuesday. The yield on the benchmark 10-year general obligation fell three basis points to 1.96% from 1.99% on Monday while the yield on 30-year GOs also dropped three basis points to 2.86% from 2.89% on Monday, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed, with the two-year note yield falling to 0.47% from 0.58% on Monday. The 10-year yield dropped to 2.08% from 2.11% while the 30-year increased to 2.95% from 2.74% on Monday.
The 10-year muni-to-Treasury ratio was calculated at 94.9% versus 94.1% on Monday; the 30-year muni to Treasury ratio was at 106.0%, compared with 105.3% on Monday.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 34,215 trades on Monday on volume of $7.759 billion. Most active on Monday, based on the number of trades, were the New Jersey Transportation Trust Fund Authority transportation program bonds, Series AA 4 1/4s of 2044, which traded 123 times with an average price of 100.251 and an average yield of 4.193%.
