The municipal bond market got off to a quiet start to the week on Monday after surviving two of the busiest weeks of the year, during which an estimated $25 billion of new supply was priced.
Several large deals came to market on Monday, which marked the start of the last full trading week of 2014.
"It's really, really quiet," a trader in Texas said. "After gobbling up all that issuance of the last few weeks, I think investors are just laying back and digesting all that supply."
Municipal bond prices traded slightly weaker on the day, according to Municipal Market Data.
PRIMARY MARKET
Bank of America Merrill Lynch priced the New York State Dormitory Authority's $510.37 million tax-exempt and taxable personal income tax revenue bond deal for retail investors ahead of the institutional pricing on Tuesday.
DASNY's $485.96 million tax-exempt Series E bonds were priced to yield from 0.51% with a 3% coupon in 2017 to 3.28% with a 4% coupon in 2035; a 2039 maturity was priced as 5s to yield 3.13% while the 2015-2016 maturities were offered as sealed bids. No retail orders were taken in the 2044 maturity.
The $24.41 million taxable Series F bonds were priced to yield from 0.61% in 2016 with a 3% coupon to 3.55% with a 3.5% coupon in 2035; a 2039 maturity was priced as 4s to yield 3.58% and the 2016 maturity was offered as a sealed bid.
The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's.
Also on Monday, Morgan Stanley priced a $295.805 million deal for the Metropolitan Water Reclamation District of Greater Chicago that offers new-money green bonds as well as refunding securities.
The $100 million unlimited tax general obligation capital improvement Series A Green Bonds were priced as a bullet maturity of 2044 as 5s to yield 3.28%.
The $50 million unlimited tax general obligation alternative revenue source Series B green bonds were priced to yield from 0.49% with a 2% coupon in 2016 to 2.98% with a 5% coupon in 2034; the 2039 maturity was priced as 5s to yield 3.18% and the 2044 maturity was priced as 5s to yield 3.28%.
The $75 million limited tax general obligation capital improvement Series C Green Bonds were priced to yield from 0.49% with a 2% coupon in 2016 to 2.68% with a 5% coupon in 2028.
The $70.805 million limited tax general obligation refunding Series D bonds were priced to yield from 0.49% with a 2% coupon in 2016 to 2.13% with a 5% coupon in 2022.
The bonds are rated triple-A by S&P and Fitch Ratings. Traders said the deal looked good and would likely do well
"The strongest rating in the state, I think it's going to do very well," said a Midwest trader. "It is a low supply week, and there's a lot of cash out there, so these deals will get gobbled up pretty easily."
A NOT READY FOR PRIMARY TIME PLAYER
One deal that won't be coming to market this week is the Pennsylvania Commonwealth Financing Authority's $198.7 million revenue bonds originally set for sale on Thursday.
The CFA and the Office of the Budget canceled the sale as they await the final release of the commonwealth's financial statements, expected on Dec. 31.
"This is another messy situation for Pennsylvania, which has had and is likely to have other financial issues in the near term," Tom Kozlik, a director at Janney Capital Markets, says in a research note. "This summer Moody's downgraded Pennsylvania (Aa3/AA-/AA-) to Aa3 from Aa2 due to the state's structurally imbalanced budget and pension funding problems."
He said that gains in state revenues do not always result in an improvement in credit quality because with increased revenue comes increased pressure for spending.
"For Pennsylvania, even though revenues are trending higher, demand for spending is growing at an even faster pace," Kozlik says. "This dynamic is creating a structural imbalance that is difficult, but not impossible, for Pennsylvania politicians to repair."
SECONDARY MARKET
High-grade municipal bond prices moved slightly lower. The yield on the benchmark 10-year general obligation rose one basis point to 1.99% from 1.98% on Friday while the yield on 30-year GOs was up one basis point to 2.89% from 2.88%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed, with the two-year note yield rising to 0.58% from 0.55% on Friday. The 10-year yield inched up to 2.11% from 2.10% while the 30-year decreased to 2.74% from 2.76% on Friday.
The 10-year muni-to-Treasury ratio was calculated at 94.1% on Friday versus 94.5% on Friday; the 30-year muni to Treasury ratio was at 105.3%, compared with 104.7% on Friday.
PREVIOUS SESSION'S ACTIVITY
The Municipal Securities Rulemaking Board reported 32,999 trades for Friday on volume of $10.009 billion.
Most active on Friday, based on the number of trades, were the Cave Spring, Ga., Housing Development Corp.'s Rome ALF mortgage revenue bonds, Series A 7 1/4s of 2044, which traded 189 times with an average price of 100 and an average yield of 7.25%.
