Prices of top-quality municipal bonds were stronger at mid-session, traders said, with yields on some maturities falling by as much as three basis points.
Meanwhile, the market's gaze is turned toward the two big deals on the calendar - Chicago and Pennsylvania.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Tuesday was down as much as one basis point from 2.30% on Friday, while the yield on the 30-year GO was off from one to three basis points from 3.28%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were mostly higher on Tuesday as the yield on the two-year Treasury note was flat at 0.62% from Friday, while the 10-year yield decreased to 2.16% from 2.22% and the 30-year yield was down to 2.91% from 2.99%.
The 10-year muni to Treasury ratio was calculated on Friday at 103.5% versus 105.2% on Thursday, while the 30-year muni to Treasury ratio stood at 109.6% compared to 110.2%, according to MMD.
Primary Market
There are no major deals slated to come to market on Tuesday.
On Wednesday, Chicago will offer a total of $645 of fixed-rate bonds to convert $800 million, with the remaining funds needed to redeem the floating-rate paper coming from its short term borrowing program.
The city will offer $172 million from its $200 million 2002 issue, $169 million from its $180 million 2003 issue, $162 million from its $222 million 2005 issue, and $143 million from its $200 million 2007 issue.
All will include a mix of serial and term bonds with the respective final maturities in 2037, 2034, 2040, and 2042, according to an investor presentation posted late Friday with the deal's offering statements. The city will make a total of $200 million in swap termination payments due to negative valuations on derivatives tied to the bonds.
Bank of America Merrill Lynch will be running the books with Citi, Ramirez, and Siebert Brandford Shank as co-senior managers. Another eight firms round out the syndicate on the transaction. Columbia Capital Management is advising the city on the deals.
The sale comes hard on the heels of the city's downgrade to Ba1 with a negative outlook from Moody's Investors Service over the challenges posed to city pension reforms by a state Supreme Court ruling voiding state pension changes.
Fitch Ratings and Standard & Poor's downgraded the city, within investment grade territory, to BBB-plus and A-minus, respectively, citing liquidity risks posed by the Moody's downgrades. Kroll Bond Rating Agency affirmed the city's A-minus rating and stable outlook.
Chicago bonds currently trade at about 300 basis points over the MMD's triple-A scale. In contrast, the state of Illinois GOs (A3/A-minus/A-minus) trade around 170 to 185 basis points over the MMD scale.
Also on Wednesday, the state of Pennsylvania will competitively sell $1.2 billion of general obligation bonds, consisting of $460 million of second Series of 2015 and $770.2 million of first refunding Series of 2015. The bonds are rated Aa3 by Moody's.
Pennsylvania last sold bonds competitively on Feb. 3 when Bank of America Merrill Lynch won $1 billion of First Series of 2015 GOs with a true interest cost of 2.99%.
Other deals on the calendar include the St. Paul Housing and Redevelopment Authority's $494 million of health care facilities revenue refunding bonds to be priced by Piper Jaffray on Thursday; the Miami-Dade County School Board's $461 million of certificates of participation to be priced by Citi on Thursday; the Montgomery County Industrial Development Authority, Pa.'s $455 million of health system revenue bonds to be priced by Bank of America Merrill Lynch on Thursday; the Massachusetts Educational Financing Authority's $185 million of revenue bonds expected to be priced by Morgan Stanley on Thursday; and the San Mateo County Community College District, Calif.'s $127 million of GOs slated to be priced by Morgan Stanley on Wednesday.
Prior Week's Most Actively Traded Issues
Among some of the most actively traded issues in the week ended May 22 were issuers from Chicago, New Jersey and Sacramento, according to Markit.
Broken down by market sector, revenue bonds comprised 54.24% of new issuance, down from 55.53% in the prior week. General obligation bonds comprised 37.85% of total issuance, up from 36.75%, while taxable bonds made up 7.91%, up from 7.72%.
In the revenue bond sector, the New Jersey Economic Development Authority 5s of 2026 were traded 379 times. In the GO bond sector, the Sacramento Unified School District 4s of 2040 were traded 198 times. And in the taxable bond sector, the Chicago Board of Education 6.519s of 2040 were traded 54 times, according to Markit.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $1.16 billion to $13.36 billion on Tuesday. The total is comprised of $7.05 billion competitive sales and $6.31 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 22,574 trades on Friday on volume of $5.857 billion.
The most active bond, based on the number of trades, was the Florida Mid-State Bridge Authority's Series 2015A first senior lien revenue bonds 4s of 2040, which traded 62 times at an average price of 98.527 with an average yield of 4.094%. The bonds were initially priced at 96.14 to yield 4.25%.
Yvette Shields contributed to this report
