Prices of top-quality municipal bonds finished mostly unchanged on Thursday, traders said, with yields turning mixed on some shorter maturities.
The market saw issues from Connecticut and Massachusetts price on Thursday as traders eyed upcoming new issue supply, which is expected to be substantial.
Secondary Trading
The yield on the 10-year benchmark muni general obligation was flat from 2.03% on Wednesday, while the yield on the 30-year GO was steady from 3.04%, according to the final read of Municipal Market Data's triple-A scale.
Muni action was limited, MMD analyst Randy Smolik wrote in a Thursday market comment, ahead of Friday's employment report for September.
"A sudden buildup of the primary calendar [for next week] could be a concern too," he wrote "In three names alone (Chicago's O'Hare Airport, New York's Utility Debt Securitization Authority, and the Port Authority of N.Y. & N.J.) there is $5 billion in supply."
Treasury prices were mostly higher with the yield on the two-year Treasury note unchanged from 0.64% on Wednesday, while the 10-year yield fell to 2.04% from 2.07% and the 30-year yield decreased to 2.86% from 2.88%.
The 10-year muni to Treasury ratio was calculated on Thursday at 99.8% versus 98.6% on Wednesday, while the 30-year muni to Treasury ratio stood at 106.8% compared to 105.6%, according to MMD.
Primary Market
RBC Capital Markets priced Connecticut's $847.67 million of Series 2015A and Series 2015B special tax obligation bonds for transportation infrastructure purposes for institutions after a one-day retail order period on Wednesday.
The $700 million of Series 2015A bonds were priced to yield from 0.91% with a 5% coupon in 2018 to 3.57% with a 4% coupon and 3.27% with a 5% coupon in a split 2035 maturity. The 2016 and 2017 maturities were offered as sealed bids.
The $147.67 million of Series 2015B refunding bonds were priced to yield from 0.91% with a 3% coupon to 2.70% with a 5% coupon in 2027.
For retail, the Series 2015A bonds were priced to yield from 0.92% with a 5% coupon in 2018 to 3.58% with a 4% coupon and 3.28% with a 5% coupon in a split 2035 maturity. The 2016 and 2017 maturities were offered as sealed bids; no retail orders were taken in the 2026-2029, 2031, or 2033-2034 maturities. The Series 2015B bonds were priced for retail to yield from 0.92% with a 3% coupon to 2.70% with a 5% coupon in 2027.
The bonds were rated Aa3 by Moody's and AA by S&P and Fitch.
Ramirez & Co. priced the Massachusetts Bay Transportation Authority's $357.39 million of senior sales tax bonds.
The $177.84 million of Series 2015A bonds were priced to yield from 1.71% with 2% and 5% coupons in a split 2022 maturity to 3.37% with a 4% coupon in 2035; a 2040 maturity was priced as 5s to yield 3.17% and a 2045 split maturity was priced as 4s to yield 3.61% and as 5s to yield 3.24%.
The $179.55 million of Series 2015B bonds were priced as 5s to yield 1.06% in 2019 and as 5s to yield from 2.05% in 2024 to 2.72% in 2030 and as 4s to yield 3.22% in 2032, as 5s to yield 2.90% in 2033 and as 4s to yield 3.37% in 2035.
The issue is rated Aa2 by Moody's and AA-plus by S&P.
Since 1995, MBTA has sold about $10.7 billion of debt. The years of 2004 and 2005 saw the highest issuance with $1.6 billion and $1.3 billion, respectively. The MBTA did not come to market at all in 2001, 2011 or 2013.
Did the Fed Wait Too Long?
After the muni market anticipated a rise in rates by the Federal Reserve that never came last month, what can we expect going forward?
Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management, believes the Fed should have acted sooner.
"We think that they waited too long and now this heightens things for there to be a move in October and they could act to raise 25 basis points," he told The Bond Buyer on Thursday. "This resolution [that Congress passed to fund the government] will take us to December. I don't think they would risk facing a shutdown and then raising right after that. However, the market is not pricing in an October move yet."
So how will the Federal Open Market Committee's decision affect the muni market for the rest of the year and into 2016?
"We should see a ramp up of rates early next year. As we continue to get more reports for the rest of the year, including Friday's unemployment report, there might be more evidence to suggest that the market did not like the waiting from the Fed and that it was a mistake to wait," he said. "When rates do rise, we advise staying further out on the yield curve, as we anticipate it will flatten. On a relative basis, there is a lot of value [in munis], there is a lot more value there than people think there is."
Heckman also believes that the trend of lack of new money issuance will continue, but that it might trigger something positive.
"The trend of no -- or a lack of -- new money issuance will continue, but it may be the trigger to get some more normalized ratios in the muni market," he said. "We could see further downward pressure on yields and I think that will help refunding activity, but so much of it is behind us. I hear over and over from dealers that they don't have any inventory. And every high-quality deal is getting oversubscribed."
Overall, Heckman was still positive on the muni market.
"Year to date, you can't find another bond sector that has been better," he said.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $1.63 billion, bringing total net assets to $243.95 billion in the period ended Sept. 28, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.47 billion to $245.58 billion in the previous week.
The average, seven-day simple yield for the 377 weekly reporting tax-exempt funds remained at 0.01% for the 126th straight week.
The total net assets of the 949 weekly reporting taxable money funds rose $17.41 billion to $2.458 trillion in the period ended Sept. 29, after an inflow of $17.78 billion to $2.440 trillion the previous week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 37th week in a row.
Overall, the combined total net assets of the 1,326 weekly reporting money funds increased $15.78 billion to $2.702 trillion in the period ended Sept. 29, which followed an inflow of $16.31 billion to $2.686 trillion the week before.
