Prices of top-rated municipal bonds were unchanged to stronger on Monday, traders said, with yields on some maturities as much as five basis points lower at the close. In early trading, yields had been down by as much as seven basis points.
Munis followed Treasuries prices higher in an early flight-to-quality bid when U.S. equities plunged after shares in China went into free-fall. By the close, stocks pared their losses. Treasuries gave back their gains -- and so did munis.
The yield on the 10-year benchmark muni general obligation finished four basis points lower at 2.09% from 2.13% on Friday, while the yield on the 30-year GO was unchanged at 3.00%, according to the final read of Municipal Market Data's triple-A scale. Some intermediate maturities were from one to five basis points lower at the close.
Treasury prices were mixed on Monday, with the yield on the two-year Treasury note falling to 0.56% from 0.63% on Friday, while the 10-year yield fell to 2.02% from 2.06% and the 30-year yield increased to 2.75% from 2.74%.
In late trading, the Dow Jones Industrial Average was down about 550 points. In early trading, the Dow had been down as much as 1,000 points. The Nasdaq Composite Index was off around 160 points and the S&P 500 Index dropped about 75 points.
The 10-year muni to Treasury ratio was calculated on Monday at 104.7% versus 103.9% on Friday, while the 30-year muni to Treasury ratio stood at 110.4% compared to 109.3%, according to MMD.
Primary Market
Traders are preparing for the $8.5 billion new issue calendar, which is topped off by some large sales in New Jersey and California. Total volume for the week consists of $7.2 billion of negotiated deals and $1.3 billion of competitive sales.
Bank of America Merrill Lynch is slated to price three series of bonds for the New Jersey Economic Development Authority totaling $2.2 billion. The bonds had a two-day retail order period with the institutional pricing set for Tuesday.
On Friday, BAML priced the authority's $1.658 billion of school facilities construction bonds and refunding bonds, Series WW and XX for retail and on Monday it repriced the deal.
The $500 million of Series 2015 WW school facilities construction bonds were repriced to yield from 4.66% with a 4.625% coupon in 2028 and as 5s to yield from 4.98% in 2033 to 5.11% in 2037. The 2029-2032 and a term bond in 2040 were not offered to retail.
The $1.16 billion of Series 2015 XX school facilities construction refunding bonds were repriced to yield from 3.53% with a 3.25% coupon and 5% coupon in a split 2020 maturity to 4.36% with a 5% coupon in 2025. The 2026 and 2027 maturities were not offered to retail.
A sale of $574 million of Series 2015YY taxable school facilities construction refunding bonds is also scheduled.
The bonds were rated A3 by Moody's Investors Service and A-minus by Standard and Poor's and Fitch Ratings.
In the competitive arena on Tuesday, the Cobb-Marietta Coliseum and Exhibit Hall Authority, Ga., is selling $372.55 million of Series 2015 taxable revenue bonds to finance the Atlanta Braves' new stadium.
The fixed-rate, 30-year bonds are being issued by the Cobb-Marietta Coliseum & Exhibit Hall Authority through an interlocal agreement with the county. Bond proceeds will be used as the county's contribution to a $672 million, 41,500-seat Major League Baseball stadium.
The deal is rated triple-A by Moody's, S&P and Fitch.
"We expect strong bids as a result of the triple triple-A ratings based upon the county's full faith and credit pledge to the intergovernmental contract securing the bonds," financial advisor Dianne McNabb, a director at Public Financial Management, told The Bond Buyer on Friday.
Morgan Stanley is set to price the state of California's $1.9 billion of various purpose general obligation and GO refunding bonds on Wednesday after holding a retail order period on Tuesday.
"These bonds help strengthen our communities by helping to fund the construction of roads, schools and other important infrastructure projects," state Treasurer John Chiang said in a release.
About $1.35 billion from the sale will be used to refinance existing debt with the remaining $550 million providing permanent financing for capital facilities or other voter-approved projects and public facilities.
The deal is rated Aa3 by Moody's, AA-minus by S&P and A-plus by Fitch.
Barclays Capital is expected to price Guam's $404.87 million of Series 2015D business privilege tax refunding bonds on Wednesday. The deal is rated rate A by S&P and A-minus by Fitch.
Barclays is also set to price the Connecticut Health and Educational Facilities Authority's $320 million of Series L revenue bonds for Quinnipiac University on Thursday. The bonds are rated A3 by Moody's and A-minus by S&P.
PRASA Deal on Day-to-Day
Market participants were also eying the fate of the delayed Puerto Rico Aqueduct and Sewer Authority's $750 million senior lien revenue bond deal.
Last week, the Puerto Rico Government Development Bank said the deal would be delayed. Lead underwriter Bank of America Merrill Lynch had no comment on the timing on the sale.
On Monday, PRASA released a third supplement to its official statement. The supplement focused on the recent appeal by the commonwealth to the U.S. Supreme Court asking for a ruling that to overturn a ban that prevents public agencies from restructuring.
"Assuming PRASA's financial projections are met and the utility is able to access the market on reasonable terms and for sufficient amounts to cover its capital needs, we currently do not contemplate PRASA necessitating a restructuring of its debt or seeking protection under the Recovery Act or any similar law," Victor Suarez Melendez, chief of staff of Gov. Puerto Rico Gov. Alejandro García Padilla, said in a statement on Monday.
He said, however, that the commonwealth needs a formal structure in place, in case it is needed in the future.
"Nonetheless, if any Puerto Rico utility ever needs to restructure its debts, it should be done in a way that is fair not only to their creditors but also to the people such utilities serve. Puerto Rico -- unlike the 50 states -- lacks access to any legal mechanism to restructure the debts of its public utilities, and is in this pursuit for justice and equal treatment that we seek the fair and reasonable wisdom of the court."
Some market participants cited a lack of investor interest as a reason for the deal's delay.
"We are unsure whether demand exists in the market for the new sale, as investors fear restructuring of any and all Puerto Rico bonds," Daniel Hanson, an analyst at Height Securities, wrote in a Monday report, according to Bloomberg. "If the bonds do sell, we think the yields could touch 10.5%, given the heightened default risk, the pricing of legacy PRASA securities, and the reality that the bonds will likely trade down."
The deal is now listed on the day-to-day calendar.
"Puerto Rico's planned sale of $750 million Aqueduct and Sewer Authority (Caa3/CCC-/CC) bonds from last week received tepid interest and so has been moved to this week's calendar and is currently listed as day-to-day," Municipal Strategist Alan Schankel wrote in a Monday market comment.
Prior Week's Actively Traded Issues by Sector
Revenue bonds comprised 55.37% of new issuance in the week ended Aug. 21, up from 54.81% in the previous week, according to Markit. General obligation bonds comprised 35.72% of total issuance, down from 36.95%, while taxable bonds made up 8.91%, up from 8.24%.
Some of the most actively traded issues in the week ended Aug. 21 were in the District of Columbia, California and Oregon, according to Markit.
In the revenue bond sector, the District of Columbia hospital 4s of 2040 were traded 67 times. In the GO bond sector, the Mount Diablo Unified School District, Calif., zeroes of 2030 were traded 34 times. And in the taxable bond sector, the Port Morrow Transmission Facilities, Ore., revenue 2.937s of 2022 were traded 13 times, Markit said.
