Muni Yields Plunge as N.Y.C., New Jersey, Pennsylvania Price

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Top-shelf municipal bonds were sharply stronger, as yields plummeted as much as 16 basis points for longer maturities, according to traders.

The falling yields were welcomed by issuers, especially those facing credit concerns, as the demand was a reflection of the improved market environment, according to one market source.

Primary Market

Jefferies priced New York City's $804.33 million of GO bonds on Wednesday. The $650 million of fiscal 2017 subseries B-1 bonds were priced to yield from 1.33% with a 4% coupon in 2018 to 3.64% with a 5% coupon in 2038. A term bond in 2041 was priced to yield 3.67% with a 5% coupon and a term bond in 2041 was priced to yield 4.061% with a 4% coupon in 2043.

The $66.835 million of fiscal 2008 subseries J-7 bonds were priced to yield from 1.86% with a 4% coupon and 1.86% with a 5% coupon in a split 2020 maturity to 2..12% with a 4% coupon and a 5% coupon in a split 2021 maturity.

The $87.495 million of fiscal 2008 subseries J-9 bonds were priced to yield from 2.77% with a 4% coupon and 5% coupon in a split 2025 maturity to 2.97% with a 3% coupon and a 5% coupon in a split 2027 maturity. The deal is rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.

Pennsylvania competitively sold $613.145 million of general obligation refunding bonds, second refunding series of 2016, with J Morgan winning the bid with a true interest cost of 2.73%. The bonds were priced to yield from 0.797% with a 2% coupon in 2017 to 3.20% with a 5% coupon in 2029. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.

New Jersey competitively sold $300 million of various purpose GOs, which were won by Bank of America Merrill Lynch with a TIC of 3.76%. The bonds were priced to yield from 1.61% with a 5% coupon in 2018 to 4.146% with a 4% coupon in 2037. The bonds are rated A2 by Moody's, A-minus by S&P and A by Fitch.

With yields plummeting, demand for munis was exceptionally strong on Wednesday.

"We saw significant and strong demand today, especially on the deals from the larger Northeast issuers today," said a New York trader. "The New Jersey, Pennsylvania and NYC deals all went very well; they were supported by the market."

Another market source agreed, saying that "the solid demand for PA and NJ [deals] is a reflection of improved market environment. Post-election credit spread widening for the two fiscally challenged states, especially New Jersey, set the table for strong market reception of today's sales."

Elsewhere, Citigroup priced and repriced the Central Puget Sound Regional Transit Authority, Wash.'s $400 million of Series 2016 S-1 sales tax and motor vehicle excise tax green bonds. The bonds were repriced to yield from 1.71% with a 5% coupon in 2021 to 3.11% with a 5% coupon in 2036. A term bond in 2041 was priced to yield 3.26% with a 5% coupon and a term bond in 2046 was priced to yield 3.60% with a 5% coupon. The deal is rated Aa2 by Moody's and AAA by S&P.

Since 2007, the Puget Sound RTA has sold roughly $2.5 billion of securities, with the highest issuance occurring in 2015 when it sold $943 million. The authority did not issue any bonds in 2008, 2010, 2011, 2013 or 2014.

Bank of America Merrill Lynch priced the California Municipal Finance Authority's $202.865 million of Series 2017A revenue bonds for the NorthBay Healthcare group. The bonds were priced to yield from 2.97% with a 5% coupon in 2020 to 4.53% with a 5.25% coupon in 2031. A term bond in 2036 was priced to yield 4.79% with a 5.25% coupon, a term bond in 2041 was priced to yield 4.87% with a 5.25% coupon, a split term bond in 2047 was priced to yield 4.98% and 4.91% with a 5% coupon and a 5.25% coupon. The deal is rated BBB-minus by S&P.

RBC Capital Markets priced the county of Sacramento's $183.79 million of airport system senior revenue refunding and subordinate bonds. The $89.78 million of senior bonds were priced to yield 3.83% with a 5% coupon in a 2041 bullet maturity.

The $94.01 million of subordinate bonds were priced to yield from 3.82% with a 5% coupon in 2035 to 3.86% with a 5% coupon in 2036. A term bond in 2041 was priced to yield 3.98% with a 5% coupon. The senior bonds are rated A3 by Moody's and A by S&P, while the subordinate bonds are rated Baa1 by Moody's and A-minus by S&P.

Retail investors also were able to get in on the action, as JPMorgan priced for retail the New York City Housing Development Corp.'s $316.36 million of multi-family housing revenue sustainable neighborhood bonds. The $151.015 million of 2016 Series I-1 bonds were priced at par to yield from 1.90% and 1.95% in a split 2020 maturity to 3.20% and 3.25% in a split 2027 maturity. The term bonds were priced at par to yield 3.75% in 2031, 4.05% in 2036, 4.20% in 2041, 4.30% in 2046, and 4.40% in 2050.

The $100.025 million 2016 Series I-2-A bonds were priced at par as a bullet maturity in 2020 to yield 2.05%, with a tender option date of Nov. 11, 2019.

The $65.32 million of 2016 Series I-2-B bonds were priced at par to yield 1.85% and 2.10% in a split 2021 bullet maturity. The first half of the maturity has a tender option date of Dec. 1, 2019, and the second half has a tender option date of July 1, 2020. The deal is rated Aa2 by Moody's and AA-plus by S&P.

One Midwest trader is positive about the market as a whole going forward.

"It's certainly providing a bit of a window here, allowing borrowers to issue debt with the stabilizing market," he said.

Randy Smolik, Municipal Market Data's senior market analyst added that munis had another 'grabfest'.

"Dealers were looking to rebuild positions. Possibly the Vice President-elect Pence's comment about pushing tax reform beyond the first 100 days in office ignited some of the demand," Smolik said.

Secondary Market

Top-rated municipal bonds closed significantly stronger on Wednesday. The yield on the 10-year benchmark muni general obligation was between 15 basis points lower to 2.28% from 2.43% on Tuesday, while the yield on the 30-year decreased 16 basis points to 3.07% from 3.23%, according to a final read of MMD's triple-A scale.

Even some Puerto Rico bonds were benefitting from the decline in muni yields. The Puerto Rico Commonwealth GO 8s of 2035 were yielding 12.23% on Wednesday, according to Markit, a drop of nine basis points from 12.32% on Tuesday.

U.S. Treasuries were also stronger at the close on Wednesday. The yield on the two-year Treasury declined to 1.10% from 1.12% on Tuesday, the 10-year Treasury dropped to 2.34% from 2.39%, while the yield on the 30-year Treasury bond decreased to 3.02% from 3.08%.

The 10-year muni to Treasury ratio was calculated at 97.2% on Wednesday compared to 101.6% on Tuesday while the 30-year muni to Treasury ratio stood at 101.4% versus 104.9%, according to MMD.

"The muni secondary has gone from some of the widest spread relations witnessed last week to some of the narrowest spread trading seen this year," said Smolik. "The muni secondary has been nothing but wave after wave of aggressive buying."

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