The Washington Health Care Facilities Authority deal came cheap this morning, as investors perked up at the potential for yield.
Unfortunately for bidders, the interest was widespread, driving spreads particularly tight for a hospital credit, said a Midwest based trader.
On behalf of the Providence Health & Services Hospital System, Bank of America Merrill Lynch underwrote the deal, which featured two term bonds totaling $92.245 million, according to data provided by Ipreo.
The $67.245 million maturity was priced to yield 3.65% on a 5% coupon in 2044, while the $25 million maturity was priced to yield 4.05% on a 4% coupon in 2044, according to Ipreo.
The deal was rated Aa3 by Moody's Investors Service, AA-minus by Standard & Poor's, and AA by Fitch Ratings. All rating agencies assigned a stable outlook.
The bond was so popular in the market, that even though it is a revenue bond in the hospital sector, it priced in line with a general obligation bond of its rating. Comparing the deal to Municipal Market Data's triple-A 5% scale, the $67.245 million bond was just 29 basis points above a AA rated GO bond, and 12 basis point below the scale's single-A bond scale, according to data provided by TM3.
The alignment of revenue bond spreads with that of general obligation is demonstrative of the market's lack of supply so far in 2014, said a New York based trader. Municipal bond buyers simply do not have the luxury of supply to pick and choose which bonds in the primary to pursue, but rather are forced to look at anything and everything, said the trader.
That inability to be picky has resulted in record low spreads for sector-specific bonds, especially healthcare, as investors have lost their ability to differentiate when buying.
The MMD scale opened unchanged Friday morning and has been sluggish throughout the day. Bonds maturing through 2020, and 2026 through 2044 have held steady while those maturing between 2021 and 2025 have seen weakening up to one basis point, according to TM3.
Meanwhile the Treasury market strengthened on Friday. The two-year note held steady at 0.48% as the 10-year slipped one basis point to 2.40% and the 30-year fell four basis points to 3.15%.
