Muni Market Wades Through Deep Supply

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Top shelf municipal bonds were unchanged for most maturities, traders said, as new volume continued to pour into the primary market.

Primary Market

"The fact that Treasuries have been doing better the past few days has helped but I would say overall deals are getting done, some slightly cheaper, but the market is taking the supply fairly well," said one New York trader. Yields on 2017 maturities fell as much as 3 basis points, traders said, while they were flat for other maturities.

BAML priced the Pennsylvania State Public School Building Authority's $568.49 million of project school lease revenue refunding bonds for the School District of Philadelphia. The bonds were priced to yield from 1.56% with a 5% coupon in 2017 to 3.76% with a 5% coupon in 2036. The deal is insured by the Pennsylvania State Aid Intercept program and rated A2 by Moody's and A-plus by Fitch. Assured Guaranty insured $438.185 million maturing 2025 through 2026 and 2030 through 2033, rated AA by S&P, A2 by Moody's and AA-plus by Kroll.

Since 2007, the school district of Philadelphia has sold just over $4 billion of securities, even though it didn't issue bonds from 2012-2014. Wednesday's sale will put the district over $1 billion for this year, marking the third time since 2007 it has issued more than $1 billion in a year, with the others occurring in 2008 and 2010.

Morgan Stanley priced Commonwealth Financing Authority, Pa.'s $758.755 million of federally taxable revenue bonds. The bonds were priced at par to yield 0.475% in the 2027 through 2029 maturities and 2033 and 2038. The 2027 maturity was roughly 190 basis points above the comparable Treasury; the 2028 maturity was about 200 basis points above the comparable Treasury; the 2029 maturity was roughly 210 basis points above the comparable Treasury; the 2033 maturity was 162.5 basis points above the comparable Treasury; the 2038 maturity was roughly 175 basis points above the comparable Treasury. The deal is rated A1 by Moody's and A-plus by S&P and Fitch.

Citi priced the New Jersey Healthcare Financing Authority's $679.145 million of revenue and refunding bonds for the Robert Wood Johnson Barnabas Health Obligated Group. There was also a portion of the deal that was corporate CUSIPs.

The tax-exempt portion was priced to yield from 1.60% with a 5% coupon in 2022 to 3.56% with a 4% coupon in 2036. A term bond in 2043 was priced to yield 3.68% with a 4% coupon and 3.31% with a 5% coupon in a split maturity. The tax-exempts are rated A1 by Moody's Investors Service and A-plus by S&P Global Ratings.

Citi priced the San Diego Community College District's $628.37 million of GO bonds election of 2006 and GO refunding bonds. The $122.005 of GO bonds election was priced to yield from 0.83% with a 3% coupon in 2018 to 2.72% with a 4% coupon in 2032. A term bond in 2034 was priced to yield 3.17% with a 3% coupon. The 2017 maturity was offered as a sealed bid.

The $506 million of GO refunding bonds were priced to yield from 0.83% with a 5% coupon in 2018 to 2.89% with a 4% coupon in 2036. A term bond in 2041 was priced to yield 3.00% with a 4% coupon and 2.68% with a 5% coupon in a split maturity. The 2017 maturity was offered as a sealed bid. The deal is rated Aaa by Moody's and AA-plus by S&P.

BAML priced the Pennsylvania State Public School Building Authority's $568.49 million of project school lease revenue refunding bonds for the School District of Philadelphia. The bonds were priced to yield from 1.56% with a 5% coupon in 2017 to 3.76% with a 5% coupon in 2036. The deal is insured by the Pennsylvania State Aid Intercept program, with the exception of the $438.185 million maturing 2025 through 2026 and 2030 through 2033, which is insured by Assured Guaranty. The deal is rated A2 by Moody's and A-plus by Fitch.

BAML also priced $301.61 million of revenue bonds from University of Alabama at Birmingham's UAB Medicine Financing Authority to yield from 1.79% with a 5% coupon in 2023 to 3.64% with a 4% coupon in 2037. A term bond in 2039 was priced to yield 3.74% with a 3.5% coupon and a term bond in 2041 was priced to yield 3.66% with a 4% coupon, 3.21% with a 5.25% coupon and 3.76% with a 3.625% coupon in a triple-split maturity. The deal is rated A1 by Moody's and AA-minus by S&P.

In the competitive sector, the state of Georgia auctioned $891.645 million of GO refunding bonds in two separate sales of $508.985 million and $382.66 million. BAML won the larger deal with a true interest cost of 1.74%. The bonds were priced to yield from 0.95% with a 5% coupon in 2019 to 2.10% with a 5% coupon in 2029.

Citi won the other sale with a TIC of 1.65%. The bonds were priced to yield from 0.97% with a 5% coupon in 2019 to 1.96% with a 5% coupon in 2028. Both deals are rated triple-A by Moody's, S&P and Fitch.

"We are fumbling through the supply," the trader said. "If Treasuries don't crack we should make it through the week."

Secondary Market

The yield on the 10-year benchmark muni general obligation was steady at 1.73% from Tuesday, while the yield on the 30-year was flat at 2.56%, according to a final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were unchanged at Wednesday's close. The yield on the two-year Treasury was steady at 0.80% from Tuesday, the 10-year Treasury yield was flat at 1.75% and the yield on the 30-year Treasury bond was stagnant at 2.51%.

On Wednesday, the 10-year muni to Treasury ratio was calculated at 98.9% compared to 99.1% on Tuesday, while the 30-year muni to Treasury ratio stood at 101.8% versus 102.0%, according to MMD.

"Muni secondary trading continued to be mixed but mostly steady as dealers distributed inventories close to unchanged levels in the face of this week's hefty primary issuance," said Randy Smolik, MMD's senior market analyst.

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