Some municipal bond traders were disappointed Thursday as a Minneapolis-St. Paul airport deal repriced to even tighter yields. The $264.38 million two part airport revenue refunding deal announced a new pricing structure Thursday morning after a brief order period on Wednesday that received intense demand, a Midwest trader said.
The Minneapolis-St.Paul Metropolitan Airports Commission's sale of revenue refunding bonds closed with smaller coupons in the front end and more typical 5% coupons for bonds maturing in 2018 and beyond, according to data provided by Ipreo. The $217.79 million Series 2014A non-AMT bonds were priced to yield 0.29% on a 2% coupon in 2016 through 3.40% on a 5% coupon in 2035. The $46.59 million Series 2014B AMT tranche was priced to yield 0.34% on a 2% coupon in 2016 through 3.14% on a 5% coupon in 2026.
Although airport revenue bonds typically command a high spread than similarly rated general obligations, the Minneapolis-St. Paul bonds priced at a discount to the single-A Municipal Market Data 5% scale. The long end of the curve priced 15 basis points below Tuesday's MMD 5% scale, coming in at 3.40% on the 2035 maturing compared to the single-A 2035 general obligation benchmark of 3.55%, according to data provided by TM3. Since issuance, the MMD curve has weakened, with the single-A 2035 yield softening to 3.58%.
"Wednesday was virtually the only day to play in the primary," said a second Midwest based trader, referring to the original pricing. "Everyone hopped into this deal, hoping for some much needed yield. Turns out everyone was thinking the same thing."
Repricings in the primary have been popular this week, as volume begins to bounce back from a unusually sluggish summer and dead Labor Day week. Tuesday's $45 million Niagara Tobacco Asset Securitization Corp.'s order period was terminated on Tuesday after a quick 18-minutes on the market.
"That short of an order period gives you a good idea of how many orders they received - a lot," said the trader. The deal has yet to be repriced, but traders expect the yields to come down even further.
Short Term Paper Stays Hot
Traders clamored over short-term California notes during morning trading on Thursday, demonstrating the market's continued demand for hedging strategies against higher interest rates.
The state of California issued $2.8 billion of revenue anticipation notes on Wednesday. Maturing in June 2015, the deal was well received, pricing aggressively at a net interest cost of 0.107% on a 1.5% coupon in 2015, according to data provided by Municipal Securities Rulemaking Board's disclosure website, EMMA.
The borrowing cost was a record-low yield for the state's short-term offerings, according to the state treasurer's office. The state set its previous low last year with its $5.5 billion RAN sale, which priced at 0.21% for a May 2014 maturity and 0.23% for a June 2014 maturity.
The interest continued into Thursday's morning trading session, with 58 trades totaling $216.9 million recorded as of noon eastern time, according to the Municipal Securities Rulemaking Board's EMMA website. Yields in the secondary activity ranged from 0.124% to 0.09%, showing that traders are willing to pay a premium to ensure they will be protected from potential Federal Reserve interest rate changes, a New York based trader said.
"With the FOMC optimism permeating through the market, it's difficult to take a strong position besides the defensive one," the trader said, referring to the Federal Open Market Committee, which makes decisions on rates. "Even if you have to pay a little extra, it's better than getting burnt."
The deal's reception and subsequent secondary activity is similar to that of this year's Texas annual tax and revenue anticipation notes, or TRANs. Issued in mid-August, the $5.4 billion note deal was more than three times oversubscribed, picking up $19.6 billion orders.
The popularity allowed the deal to be priced at its lowest borrowing cost since the state began issuing the annual notes -- 0.1326%. Yields were driven down even further in the secondary markets, getting as low as 0.119% on Aug.26, according to EMMA.
Since issuance, the bonds have remained liquid in the secondary, with large volume days posted regularly. Wednesday's trading session recorded $10 million in totally trading, down from a high of $582 million on Sept. 4.
Muni Money Funds Swell
The total net assets of tax-exempt money market funds grew by $2.33 billion to $257.59 billion in the week ended Sept. 8, according to The Money Fund Report, a service of iMoneyNet.com.
The inflows erased losses of $1.78 billion the previous week.
The average seven day yield for the 418 weekly reporting tax-exempt money funds was unchanged at 0.01%, while the average maturity increased by two days to 40 days.
Inflows of $11.69 billion boosted the total net assets of the weekly reporting 1,008 taxable money funds to $2.361 trillion. The inflows compared to outflows of $19.43 billion the week before.
The average, seven-day yield for the taxable funds was unchanged at 0.01%, while the average maturity grew by one day to 44 days.
The combined total net assets of the 1,426 weekly reporting money funds increased by $14.02 billion in the week ended Sept. 9 to $2.619 trillion, up from losses of $21.21 billion in the previous week.
