Prices of top-rated municipal bonds ended unchanged in secondary trading on Thursday, traders said, as Wayne County, Mich., sold $186.9 million of taxable notes in the primary.
Wayne County came to market with its limited tax general obligation notes after the deal was postponed last week as County Executive Warren Evans asked the state for fiscal intervention to help the county fix its financial problems.
Bank of America Merrill Lynch priced the taxables as 5 3/4s to yield 6% on Dec. 1, 2017, a price of about 99.438. The preliminary pricing on the notes offered a 5% coupon, which was pushed up to 5.75% in the final pricing, according to sources.
"That's a big adjustment," said Matt Posner, Managing Director at Municipal Market Analytics.
"It signals there is a lot of uncertainty about the county," one analyst said about the 6% yield, "Investors are very wary" about the safety of note repayment as the county seeks state intervention to tackle its fiscal woes.
"It shows a lack of confidence in their ability to pay," said Brian Battle, director of trading at Performance Trust Capital Partners. "They are definitely being charged for every negative headline."
Standard & Poor's had assigned an SP1 rating to the notes, citing a "strong capacity to pay principal and interest." Public Financial Management was municipal advisor on the sale with Axe & Ecklund as note counsel and Orrick, Herrington & Sutcliffe as special bankruptcy counsel.
In a related action on Wednesday, S&P put Wayne County's general obligation limited tax rating of BB-plus on CreditWatch with negative implications following the county's request for state intervention.
"The CreditWatch placement reflects our expectation that with the onset of actions under Michigan Act 436, the county could lose some of the autonomy currently held by the CEO and his staff," said Standard & Poor's analyst Jane Ridley.
S&P said that under the law if the request is approved by the state for a financial review, the Wayne County board could choose one of four possible outcomes: a consent agreement; appointment of an emergency manager; a neutral evaluation; or it could pursue a Chapter 9 bankruptcy filing.
Since 1999, the county has issued around $236 million of notes and about $855 million of bonds, according to Thomson Reuters. Before this week, most of the note issuance occurred in 2009 when it sold $104 million and most of the bond issuance took place in 2014 when it offered $207 million.
Secondary Market
The yield on the 10-year benchmark muni general obligation finished unchanged from 2.32% on Wednesday, while the yield on the 30-year GO was flat at 3.30%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mixed on Thursday with the yield on the two-year Treasury note unchanged from 0.68% on Wednesday, while the 10-year yield rose to 2.40% from 2.37% and the 30-year yield increased to 3.16% from 3.15%.
The 10-year muni to Treasury ratio was calculated on Thursday at 96.4% versus 101.1% on Wednesday, while the 30-year muni to Treasury ratio stood at 104.1% compared to 104.2%, according to MMD.
SPDJI: Puerto Rico Muni Bond Indexes Hit New Highs
Puerto Rico municipal bond yields have hit new highs as of Wednesday, according to J.R. Rieger, Global Head of Fixed Income at S&P Dow Jones Indices.
General obligation bonds tracked in the
The average yield of bonds in the broader
Rieger said that some contributing factors to the rise include the prospects of the Puerto Rico Electrical Power Authority (PREPA) defaulting on its debt service in July, a possible restructuring of Government Development Bank (GDB) debt and the possible postponement of commonwealth GO set-asides.
In secondary trading, Puerto Rico commonwealth GOs continued to move lower on Thursday. The Puerto Rico Series A of 2014 GOs traded between 81 and 77.25 in 12 trades for $12.79 million of the paper, according to the Municipal Securities Rulemaking Board's EMMA website. The two biggest sell trades were for $3.7 million and $3 million, when two customers sold the GOs for 78.00 and 77.25, respectively. There were no buy trades over $1 million, according to EMMA.
On Wednesday, the GOs traded between 75.307 and 79 when seven customers traded $11.39 million of the securities, according to EMMA. The two biggest sell trades on Wednesday were for $3.43 million and $2 million, when two customers sold the GOs for 78.125 and 79.00, respectively. The biggest buy trade was for $5 million, when a customer bough the bonds for 78.375.
On Tuesday, the GOs traded between 80.75 and 79.125 on volume of $26.98 million. The two biggest sell trades on Tuesday were for $5 million each, when customers sold the GOs for 79.50 and 79.125. The three biggest buy trades on Tuesday were for $2 million apiece when customers bought the GOs for 80.50, 80.50 and 79.375, according to EMMA.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $1.24 billion, bringing total net assets to $243.88 billion in the period ended June 22, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $970.8 million to $245.11 billion in the previous week.
The average, seven-day simple yield for the 390 weekly reporting tax-exempt funds remained at 0.01% for a 112th straight week.
The total net assets of the 986 weekly reporting taxable money funds fell $14.99 billion to $2.370 trillion in the period ended June 23, after experiencing an outflow of $14.99 billion to $2.370 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 23rd consecutive week.
Overall, the combined total net assets of the 1,376 weekly reporting money funds increased $18.61 billion to $2.634 trillion in the period ended June 23, which followed an outflow of $15.96 billion to $2.370 trillion the week before.
