A sale of $181 million Savannah College of Art and Design Projects revenue bonds on Thursday demonstrated investors' appetite for triple-B credits.
The bonds were issued through the Private Colleges and Universities Authority, and are rated Baa2 by Moody's Investors Service and triple-B by Fitch Ratings.
An investor in the South said his group looked at the deal, but wasn't able to purchase any of the bonds due to the heavy demand.
"The bonds had been way oversubscribed -- it was 20 times oversubscribed," he said.
He said the reason investors bought up the bonds so quickly was because it's a "new kind of credit." He also said that his group runs a "positive impact fixed income" strategy in which they try to invest in higher education credits and other projects that are beneficial to society, like affordable housing and infrastructure.
A trader in New York said the credit also caught his eye. While there are a lot of Georgia airports or state issuances, the trader said, there aren't many Georgia higher education credits in the market.
"It's a college of art and design," he said. "You don't see that every day."
Both traders said they liked the deal because it was priced attractively, with yields ranging from 0.44% with a 5% coupon in 2015 to 4.20% with a 5% coupon in 2044.
"There's some nice yield to them, it's important to have some yield in your portfolio these days," the trader in New York said. "But god knows it's hard."
Wells Fargo Securities was the managing underwriter. The deal features sinking funds on two term bonds in 2035 and 2044.
Green Reels Them In
The Massachusetts $776.9 million "green" general obligation bond deal entered its institutional sale period today to demand that was so heavy the deal team upped the size of the portion of the deal marketed towards institutional buyers, the trader in the south said.
The deal came in two parts with one totaling $350 million, which was sold to retail for three days starting Monday before it became available to institutional buyers. The second part, $426.9 million of GO refunding bonds, was available to institutional investors on Thursday, the trader said. The refunding portion of the deal was originally scheduled to total $330 million.
"There was more demand so they upped the size," he said. "There are all these projects identified that need funding."
Yields on the $350 million part of the deal ranged from 1.22% with a 2% coupon in 2019 to 2.74% with a 5% coupon in 2031. These bonds are callable at par in 2022.
The second $426.9 million section had fewer maturities, with yields ranging from 0.12% with a 1.25% coupon in 2015 to 2.53% with a 5% coupon in 2025. This part of the issuance doesn't have a call option.
Morgan Stanley was the lead underwriter. The bonds were rated Aa1 by Moody's, and AA-plus by S&P and Fitch.
Scotland Vote Captivates Investors
Scotland started its referendum on whether to secede from the UK, a vote that investors said could affect both the Treasury and muni markets.
"If we get the yes vote there is economic concern for Scotland,' Anthony Valeri, CFA at LPL Financial, said in an interview. "The Bank of England stands behind Scottish assets, so if [Scotland votes to secede] that might be viewed somewhat negatively. If we get a yes we might see a little bit of a safe haven effect to Treasuries, that would provide indirect benefit to munis,"
A trader in Virginia said that the market will probably not see volatility on Thursday, because Scotland will probably be finishing after the market is closed. He said the impact may be felt on Friday.
"It's crazy that something like that would have that much impact, but I think will have a close vote," he said. "If you vote for Scotland becoming independent you could see flight to quality, moreso in euro markets, but here, too."
Yields on Treasuries were mixed, with the two-year note and the 10-year both rising by two basis points and three basis points to 0.57% and 2.63%, respectively. The 30-year's yield dropped two basis points to 3.34%.
Municipal bond yields rose in the intermediate part of the curve with bond maturing in five to eight years increasing by one basis point, by two basis points for nine- to 10-year maturities and by one basis point for 11- to 13-year maturities, according to Municipal Market Data's triple-A scale.
The 10-year and the 30-year municipal bonds' yields rose by one basis point to 2.23% and 3.37% respectively, according to Municipal Market Advisors' data. The two-year held steady at 0.31%.
Losses Return to Muni Money Funds
Tax-exempt money fund assets lost more than half of the gains they acquired last week as total net assets declined by $1.40 billion to $256.19 billion in the week ended Sept. 15, according to The Money Fund Report, a service of iMoneyNet.com.
The losses followed $2.33 billion of inflows the funds reported last week.
The average, seven-day yield for the 418 weekly reporting tax-exempt money market funds was steady at 0.01%, while the average maturity increased by one day to 41 days.
The total net assets of the 1,012 weekly reporting taxable money market funds decreased by $12.56 billion to $2.348 trillion in the week ended Sept. 16, which reversed the previous week's inflows of $11.69 billion.
The seven day yield for the taxable money funds remained unchanged at 0.01%, while the average maturity increased by one day to 45 days compared to the week before.
The combined total net assets of the 1,430 weekly reporting money market funds declined by $13.96 billion to $2.605 trillion in the week ended Sept. 16, which nearly erased last week's gains of $14.02 billion.
