Prices of top-shelf municipal bonds continued to strengthen for a second day on Tuesday, traders said, with some yields falling by six basis points as worries caused by Greek and Chinese financial woes continued to fuel a flight to quality movement.
Looking at the situation in Greece, the big question has now changed from "yes or no?" to "in or out?" European ministers and Greek officials meeting in Brussels were no closer to deciding the next course of action after Greek voters chose "no" to more austerity bailout measures, which may mean they will be "out" of the euro monetary union soon.
In China, the government moved to quell equity volatility by putting in new capital measures designed to stabilize the markets. Chinese stocks closed lower on Tuesday with the CSI300 index dropping 1.8%, the Shanghai Composite Index falling 1.3% and the ChiNext declining 5.1%.
The yield on the 10-year benchmark muni general obligation closed down four basis points to 2.22% from 2.26% on Monday, while the yield on the 30-year GO was off six basis points to 3.21% from 3.27%, according to the final read of Municipal Market Data's triple-A scale. Other maturities were steady to five basis points lower.
Treasury prices were higher as well, with the yield on the two-year Treasury note falling to 0.57% from 0.59% on Monday, while the 10-year yield dropped to 2.22% from 2.28% and the 30-year yield decreased to 3.00% from 3.07%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 100.5% versus 99.0% on Monday, while the 30-year muni to Treasury ratio stood at 106.6% compared to 104.4%, according to MMD.
Puerto Rico GO Prices Continue to Strengthen
Prices of Puerto Rico general obligation debt were firmer on Tuesday, even as the news surrounding the commonwealth remained negative.
Last week, prices on Puerto Rico bonds were volatile, moving up at the end of the week after plunging earlier on Gov. Alejandro García Padilla's statement the commonwealth couldn't pay its $72 billion in debt.
On Monday, Puerto Rico lost its bid to revive a restructuring law that investors argued conflicts with U.S. bankruptcy code, a blow to the commonwealth as it falls deeper into a fiscal crisis. Lawyers for Puerto Rico officials had asked the U.S. Court of Appeals in Boston to reinstate the local law to help it deal with its debt. The court resisted, agreeing instead with a San Juan judge who threw out the statute in February.
On Tuesday, the Puerto Rico commonwealth Series 2014A general obligation 8s of 2035 were trading as low as 69.875 cents on the dollar, a high yield of 12.006%, according to the Municipal Securities Rulemaking Board's EMMA website. There were 28 trades totaling $39 million. On Monday, the GO 8s of 2035 were trading as low as 69, a high yield of 12.164%, in 29 trades totaling $67 million.
Last Thursday, the GOs were trading as low as 68.045, a high yield of 12.339%, in 16 trades totaling $19 million. Last Wednesday, the GOs were trading as low as 68.25, a high yield of 12.301%, in 30 trades totaling $42 million. Last Tuesday, the GOs traded as low as 64, a high yield of 13.13%, in 110 trades totaling $223 million. Last Monday, the GOs traded as low as 68.30, a high yield of 12.291%, in 93 trades totaling $141 million.
This contrasts to Friday, June 26, before the news, when the GOs traded as low as 76.75, a high yield of 10.874%; there were 19 trades totaling $22 million.
Primary Market
In the competitive sector on Tuesday, Tampa, Fla., sold two separate issues totaling around $125.67 million.
Morgan Stanley won the $88.79 million of Series 2015 water and sewer systems refunding revenue bonds with a true interest cost of 3.07%. The bonds were priced to yield from 0.15% with a 5% coupon in 2015 to 3.632% with a 3.5% coupon in 2037. The issue is rated Aa1 by Moody's Investors Service and triple-A by Standard & Poor's and Fitch Ratings.
Citigroup won the $36.88 million of Series 2015 non-ad valorem refunding revenue bonds with a TIC of 3.22%.The bonds were priced to yield from 2.37% with a 5% coupon in 2024 to about 3.176% with a 3% coupon in 2029. This issue is rated Aa2 by Moody's, AA-plus by S&P and AA-minus by Fitch.
Also from the Sunshine State this week, the Central Florida Expressway Authority is set to competitively sell $194 million of Series 2015 senior lien revenue bond anticipation notes on Wednesday. The BANs are rated A2 by Moody's and A by S&P and Fitch.
And Hillsborough County, Fla., is set to competitively sell $140 million of Series 2015 community investment tax refunding revenue bonds on Wednesday. The bonds are rated A1 by Moody's and AA by S&P and Fitch. The last time the county competitively sold comparable bonds was on May 10, 2021 when Bank of America Merrill Lynch won $38.1 million of Series 2012A community investment tax revenue refunding bonds with a TIC of 2.44%.
In the negotiated sector on Wednesday, the Illinois State Toll Highway Authority's $400 million of Series 2015A toll highway senior revenue bonds are expected to be priced by Bank of America Merrill Lynch. The bonds are rated Aa3 by Moody's and AA-minus by S&P and Fitch.
This deal is the first of two new-money borrowings to finance a record year of capital spending. The $1.6 billion of capital spending planned this year is part of the 15-year, $12 billion Move Illinois capital program launched in 2011. The authority operates 286 miles of toll highways in 12 counties in northern Illinois.
Since 1996, the authority has issued almost $8 billion of bonds, with the most issuance occurring in 2008 and 2014 when it sold $1.1 billion and $1.5 billion, respectively. The authority sold no debt in 1997, 1999 through 2004 or in 2011 or 2012.
