Municipal market participants are prepared for the busiest day of the week, which will feature seven deals greater than $500 million each from some big name issuers from California, New York, Connecticut and Texas.
Secondary Market
U.S. Treasuries were weaker on Tuesday morning. The yield on the two-year Treasury rose to 0.82% from 0.81% on Monday, the 10-year Treasury yield was higher to 1.78% from 1.76% and the yield on the 30-year Treasury bond increased to 2.55% from 2.52%.
The yield on the 10-year benchmark muni general obligation rose two basis points on Monday to 1.73% from 1.71% on Friday, while the yield on the 30-year was steady at 2.56%, according to a final read of Municipal Market Data's triple-A scale.
On Monday, the 10-year muni to Treasury ratio was calculated at 89.3% compared to 95.6% on Friday, while the 30-year muni to Treasury ratio stood at 91.2 % versus 100.2%, according to MMD.
Municipal CUSIP Requests Fell 2% in Sept.
Demand for new municipal CUSIP identifiers dropped 2% in September after showing monthly increases throughout most of the second and third quarters of 2016, CUSIP Global Services said in a report released on Tuesday.
A total of 1,277 new municipal bond identifier requests were made last month, still enough to keep year-over-year municipal issuance growth levels positive at 6.2% growth over the same period in 2015.
The report tracks requests by issuers for bond identifiers as an early indicator of new volume and suggests a resurgence of municipal issuance in the next several weeks.
"A combination of favorable market conditions and seasonal, quarter-end activity have conspired to keep overall CUSIP request volume at a relatively high level through the end of September," said Gerard Faulkner, director of operations for CUSIP Global Services. "Based on the data we've seen for the first three quarters of 2016, we expect to see a sustained pace of new security issuance through the next several months."
Richard Peterson, senior director at S&P Global Market Intelligence, said that the story behind the surge in new debt issuance is the Federal Reserve's decision to keep rates low.
"As long as corporate and municipal issuers can take advantage of these historically low interest rates, we expect the trend of strong new debt issuance volume to continue in force," he said.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $3.17 billion to $23.45 billion on Tuesday. The total is comprised of $7.09 billion of competitive sales and $16.36 billion of negotiated deals.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 33,912 trades on Monday on volume of $8.522 billion.
Primary Market
The State of Connecticut's $650 million of general obligation bonds and green bonds for retail investors on Monday, ahead of institutional pricing on Tuesday, with Morgan Stanley joining Wells Fargo as bookrunner. The $585 million of GO bonds were priced for retail to yield from 1.26% with a 4% coupon in 2019 to 2.74% with a 5% coupon in 2030. The bonds were also priced for retail to yield from 3.24% with a 4% coupon in 2033 to 3.53% with a 3.375% coupon in 2036. The 2017 and 2018 maturities were offered as sealed bids.
The $65 million of GO green bonds were priced to yield from 2.81% with a 5% coupon in 2031 to 2.88% with a 5% coupon in 2032. The deal is rated Aa3 by Moody's and AA-minus by both S&P and Fitch Ratings.
On Sept. 23, Connecticut State Treasurer Denise L. Nappier modified the assignment of lead banker for the upcoming sale of general obligation bonds in light of recently disclosed actions by Wells Fargo and sanctions imposed by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.
Treasurer Nappier, citing "ongoing investigations associated with Wells Fargo, including the potential distraction and uncertainty for the bank," added Morgan Stanley as co-bookrunner for this bond sale alongside Wells Fargo. The addition of Morgan Stanley, Treasurer Nappier said, was "made in an abundance of caution to help ensure the success of the sale." Wells Fargo had been assigned as the sole bookrunner prior to the recent revelations of regulatory actions against the bank.
In addition, Treasurer Nappier's staff currently is reviewing the State's other business relationships with Wells Fargo, including its holdings of securities through its pension and trust funds, and is closely monitoring ongoing investigations.
Since 2006, the state of Connecticut has sold roughly $31.2 billion of securities, with the highest issuance coming in 2008 when they sold $4.21 billion. During the same time period, the Constitution State has sold more than $2 billion in every year, except in 2006 and 2007.
Jefferies priced the New York Metropolitan Transportation Authority's $632.025 million of revenue refunding bonds also for retail investors on Monday, ahead of institutional pricing on Tuesday. The bonds were priced for retail to yield from 1.12% with a 5% coupon in 2019 to 1.53% with a 5% coupon in 2022 and to yield 1.89% with a 4% coupon in 2022. The bonds were also priced to yield from 2.17% with a 5% coupon in 2026 to 3.30% with a 3.125% coupon in 2035. The 2017 and 2018 maturities were offered as sealed bids. The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
With such a robust calendar, the remaining days this week will feature lots of action. It all gets started on Tuesday, which is likely to be the busiest day of the week. In addition to the Connecticut and MTA sales, the Texas Transportation Commission's $600 million of highway improvement GO bonds is scheduled to come to market Tuesday. Wells will price the deal, which is rated triple-A by Moody's, S&P and Fitch.
Morgan Stanley is on the docket to run the books on the Commonwealth Financing Authority, Pa.'s $758.81 million of federally taxable revenue bonds.
In the competitive arena California, which has sold the most out of all issuers with $7.27 billion as of the end of the third quarter this year, will be adding to that total with three separate sales on Tuesday that will total $1.65 billion of various purpose GO and GO refunding bonds.
The largest sale will consist of $815 million and $575.755 million issued of tax-exempt bonds and $255 million of taxables. The deals are rated Aa3 by Moody's, AA-minus by S&P and Fitch Ratings.
