Prices of top quality municipal bonds were weaker at Thursday’s close, as yields on some maturities were as much as two basis points higher.
The primary market, which has seen an influx of issuance this week, particularly in the past few days, has seen the last of the largest deals price, as the Port Authority of New York and New Jersey sold $2 billion of debt.
Primary Market
On Thursday, Wells Fargo Securities priced the Port Authority’s revenue bonds for institutions, after a one-day retail order period on Wednesday.
The $305.530 million of AMT 193rd Series bonds were priced to yield from 0.29% with a 1.5% coupon in 2016 to 3.48% with a 5% coupon in 2035.
The $1.194 billion of non-AMT 194th Series bonds were priced to yield from 0.24% with a 1.5% coupon in 2016 to 3.17% with a 5% coupon in 2035. A term bond in 2041 was priced as 5s to yield 3.40%, a term bond in 2045 was priced as 4s to yield 3.85% and a 2055 term bond was priced as 5 1/4s to yield 3.69%.
The $500 million taxable portion of the deal was priced as a bullet maturity in 2065 with a 3% coupon and is 190 basis points above the comparable Treasury.
Bank of America Merrill Lynch priced the California Veterans’ $446 million general obligation bonds on Thursday in a combined refunding and new money sale, after a one-day retail order period on Wednesday.
New money proceeds will fund home loans to veterans.
"Our demand is pretty high," said California Department of Veterans Affairs Deputy Secretary Theresa Gunn. "We have a pretty strong growth pattern and expect to do more loans this year."
The $152.295 million of non-AMT Series CK bonds were priced at par to yield 0.75% in 2017 and at par to yield from 1.55% in 2020 to 2.45% in 2024. The bonds were also priced at par to yield from 2.70% in 2026 to 3.25% in 2028. A 2030 term bond was priced to yield 3.55% with a 3.5% coupon, a 2035 term bond was priced to yield 3.83% with a 3.75% coupon and a 2040 term bond was priced at par to yield 4.00%. The 2016 maturity was offered as a sealed bid.
The $128.61 million of non-AMT Series CL bonds were priced at par to yield from 0.75% in 2017 to 1.35% in 2019. A 2028 term bond was priced at par to yield 3.25%, a 2030 term bond was priced to yield 3.55% with a 3.5% coupon and a 2034 term bond was priced to yield 3.80% with a 3.75% coupon. The 2016 maturity was offered as a sealed bid.
The $164.79 million AMT Series CM bonds were priced at par to yield 0.95% in 2017 and to yield from 1.95% in 2020 to 2.90% in 2024. The bonds were also priced at par in 2026 to yield 3.15% and to yield from 3.875% in 2030 to 4.00% in 2032. A term bond in 2036 was priced at par to yield 4.125%. The 2016 maturity was offered as a sealed bid.
Cal Vets' loan volume has grown from $8.7 million in fiscal 2012-13, to $70 million in fiscal 2013-14 and $107 million in fiscal 2014-15, Gunn said.
The deal is rated Aa2 by Moody’s, AA by S&P and AA-minus by Fitch.
Despite all of the issuance this week, including two separate $2 billion deals, market participants said there are no deals being hung up.
“It doesn’t look like the market is having any problems digesting all of this issuance,” said a Midwest trader. “All of the deals are getting done and cleaned up.”
Secondary Trading
Treasury prices were weaker at the close on Thursday, with the yield on the two-year Treasury rising to 0.63% from 0.62% from Wednesday, while the 10-year yield rose to 2.10% from 2.07% and the 30-year yield increasing to 2.95% from 2.89%.
Federal Open Market Committee minutes “disclosed how low inflation and global instability was keeping Fed members at bay,” said Randy Smolik, Municipal Market Data senior analyst. “One Fed member talked on Thursday about delaying a hike until 2017. This all led to a steeper treasury curve and munis would find weaker trading in intermediates and longer. But the $1.5 billion NY & NJ Port loan was able to bump longer serials by two-three basis points.”
The yield on the 10-year benchmark muni general obligation closed Thursday at 2.04% from 2.02% on Wednesday, while the 30-year GO was two basis points higher to 3.09% from 3.07%, according to a final read of the Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Thursday at 97.0% versus 98.1% on Wednesday, while the 30-year muni to Treasury ratio stood at 105.1% compared to 106.4%, according to MMD.
CUSIP Request Volume Falls for 5th Straight Month
The volume of requests for new municipal CUSIP identifiers fell for the fifth month in a row, CUSIP Global Services reported on Thursday. The report tracks issuance of new security identifiers as an early indicator of debt activity and suggests a possible slowdown in new municipal bond issuance over the next several weeks.
Muni requests fell 11% in September, with a total of 926 new identifier requests. This follows a drop of 16% in August, a drop of 19% in July, a 1% decline in June and a decrease of 3% in May.
On a year-over-year basis, however, muni requests are still up 28%, reflecting the first half's surge in issuance.
“The consistency of the downward trend in new ID requests across key asset classes is a clear signal that market participants are concerned about future interest rate moves,” said Gerard Faulkner, director of operations for CUSIP Global Services. “Issuers are clearly still out there, but there is definitely a wait-and-see mentality taking root, based on what we’re seeing in new CUSIP request volume.”
Despite the recent declines, municipal securities CUSIP demand is up by 20% from a year ago. Upcoming issuance by New York-based entities represented the largest share of municipal CUSIP activity in September as 156 CUSIPs were sought for offerings from that state.
“The phrase ‘don’t fight the Fed’ has become something of a mantra on Wall Street over the last several years and corporate and municipal debt issuers are clearly heading that advice right now,” said Richard Peterson, senior director of global markets intelligence, S&P Capital IQ. “While CUSIP request volume has made it clear that there will be declines in new debt issuance in the coming weeks and months, we’re anxious to see whether that trend will continue once the first rate hike takes place.”
Tax-Exempt Money Market Add $2.99 Billion
Inflows of $2.99 billion into tax-exempt money market funds boosted total net assets to $246.95 billion in the week ended Oct. 7 – ending a three-week spate of outflows, according to The Money Fund Report, a service of iMoneyNet.com.
The prior week total net assets were $243.95 billion.
The average, seven-day yield for the 377 tax-exempt money market funds remained at 0.01% for the 127th consecutive week.
Meanwhile, the 950 weekly reporting taxable money funds saw gains of $8.17 billion, which increased total net assets to $2.466 trillion in the week ended Oct. 6. That compared to $2.458 trillion in the prior week.
The average, seven-day yield for the taxable money funds remained 0.02% for the 38th consecutive week.
Overall, the combined total net assets of the 1,327 weekly reporting money funds increased by $11.17 billion and ended the week of Oct. 6 at $2.713 trillion, up from $2.702 trillion in the prior week.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,950 trades on Wednesday on volume of $8.734 billion.
