Top-rated municipal bonds ended unchanged on Wednesday, traders said, as new supply from Minnesota and Arizona issuers hit the screens a day after California priced a $2.69 billion deal.
Secondary Market
Bonds remained in quiet mode ahead of Friday's unemployment report for August and the long holiday weekend.
"Both munis and Treasuries continued to trade narrowly around unchanged levels," wrote Municipal Market Data's Senior Market Analyst Randy Smolik. "The pace of trading in the muni secondary was slow and lethargic."
The yield on the 10-year benchmark muni general obligation on Wednesday was flat from 1.42% on Tuesday, while the yield on the 30-year was steady at 2.12%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were narrowly mixed on Wednesday. The yield on the two-year Treasury slipped to 0.79% from 0.80% on Tuesday, the 10-year Treasury yield declined to 1.56% from 1.57% and the yield on the 30-year Treasury bond was unchanged from 2.23%.
The 10-year muni to Treasury ratio was calculated at 90.7% on Wednesday compared to 90.6% on Tuesday, while the 30-year muni to Treasury ratio stood at 95.1% versus 94.9%, according to MMD.
Primary Market
Despite a slower week heading into the Labor Day holiday, demand for new issuance swelled on Wednesday – especially for the larger deals.
"Everyone's waiting for Friday's number, and there are a lot of people with cash on the sidelines, but the market feels OK," a New York trader said.
In the competitive arena, the Florida Department of Environmental Protection sold $159.77 million of Florida Forever Series 2016A revenue refunding bonds. Wells Fargo Securities won the deal with a true interest cost of 1.59%.
The issue was priced to yield from 0.72% with a 5% coupon in 2018 to approximately 2.17% with a 2% coupon in 2028.
The deal is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
Barclays Capital priced the Minneapolis-St. Paul Metropolitan Airports Commission's $484.38 million of senior airport revenue refunding and subordinate airport revenue refunding non-alternative minimum tax bonds.
The $331.55 million of Series 2016A non-AMT senior airport revenue refunding bonds were priced to yield from 1.56% with 3% and 5% coupons in a split 2025 maturity to 2.13% with a 5% coupon in 2032.
The $152.78 million of Series 2016B non-AMT subordinate airport revenue refunding bonds were priced to yield from 0.70% with 3% and 5% coupons in a split 2018 maturity to 1.54% with 3% and 5% coupons in a split 2024 maturity.
The senior bonds are rated AA-minus by S&P and Fitch, while the subordinate bonds are rated A-plus by S&P and Fitch.
Since 2008, the commission has sold about $1.4 billion of bonds, with the largest issuance occurring in 2014 when it sold about $264 million of securities. This week's sale will bring the commission to its highest sales level in a year since 2008. The commission did not issue any bonds in 2013 or 2015.
JPMorgan Securities priced two issues for the Arizona Transportation Board totaling $314.41 million.
The $204.28 million of Series 2016 highway revenue refunding bonds were priced as 5s to yield 0.60% in 2017 and as 5s to yield from 1.57% in 2026 to 2.19% in 2036. The deal is rated Aa1 by Moody's and triple-A by S&P.
The $110.13 million of Series 2016 transportation excise tax revenue refunding bonds for the Maricopa County Regional Area Road Fund were priced as 5s to yield from 0.84% in 2020 to 1.47% in 2025. The deal is rated Aa1 by Moody's and AA-plus by S&P.
Jefferies priced the Pennsylvania Housing Finance Agency's $254.84 million of Series 2016-121 non-AMT single-family mortgage revenue bonds on Wednesday.
The issue was priced at par to yield from 0.85% and 0.90% in a split 2019 maturity to 2.35% and 2.375% in a split 2027 maturity, and to yield 2.80% in 2031, 3.10% in 2036 and 3.20% in 2041. A 2046 maturity was priced as 3 1/2s to yield 1.65. The deal is rated Aa2 by Moody's Investors Service and AA-plus by S&P.
JPMorgan received the official award on the state of California's $2.65 billion of various purpose general obligation and GO refunding bonds.
The refunding will save about $628.5 million, or $494.5 million in present value savings, over the remaining life of the bonds, according to State Treasurer John Chiang.
"This is a great deal for our state," Chiang said in a statement. "Every dollar we save in interest charges is available for education, health services, environmental protection and other programs that Californians value."
The $609.18 million of GOs were priced to yield from 0.50% with a 5% coupon in 2017 to 1.99% with a 5% coupon in a 2030; a triple split 2046 maturity was priced as 3s to yield 3.05%, as 4s to yield 2.58% and as 5s to yield 2.28%.
The $2.04 billion of GO refunding bonds were priced to yield from 0.45% and 0.50% with 5% coupons in a split 2017 maturity to 2.55% with a 4% coupon and 2.25% with a 5% coupon in a split 2037 maturity.
The issue is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
Commenting on the deal, the New York trader said that both retail and institutional demand was strong.
"There is so much institutional money out there that they need to put to work," he said, noting that the primary market is a magnet for that cash. "If it's a new issue they don't have to put a lot of thought into it … the market's the market."
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 36,601 trades on Tuesday on volume of $10.83 billion.
Moody's Raises Calif. DWR's $4.6B Revs to Aa1
Moody's Investors Service said it upgraded the California Department of Water Resources' $4.61 billion of pre-sale parity rated power supply revenue bonds outstanding to Aa1 from Aa2; the outlook is stable.
At the same time, Moody's assigned an Aa1 rating to the DWR's $567.86 million of Series 2016P taxable power supply revenue bonds, expected to come to market next week.
Moody's said the upgrade reflects the removal of all material power operating risks leaving only limited administrative operations including general reporting, filing the annual rate case with the California Public Utilities Commission, and settling a couple of outstanding litigation cases that are expected to result in refunds to DWR and passed through to customers.
