Munis End Weaker as Last Deals of the Week Sell

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Top-quality municipal bonds turned weaker on Thursday, traders said, with yields on some maturities rising by as much as three basis points.

The yield on the 10-year benchmark muni general obligation rose one basis point to 2.29% from 2.28% on Wednesday, while the yield on the 30-year increased three basis points to 3.10% from 3.07%, according to the final read of Municipal Market Data's triple-A scale.

The European Central Bank announcement that it was tapering its purchases of bonds took Treasury traders by surprise, dragging securities prices lower. Municipals followed suit.

Muni yields had been falling in the three prior trading sessions. As of the close on Wednesday, 10-year muni yields had dropped 30 basis points and the 30-year muni yields had declined by 28 basis points since Friday, Dec. 2.

On Thursday, U.S. Treasuries were mostly weaker in late trade. The yield on the two-year Treasury was unchanged from 1.10% on Wednesday, the 10-year Treasury yield gained to 2.38% from 2.34%, while the yield on the 30-year Treasury bond increased to 3.08% from 3.02%.

The 10-year muni to Treasury ratio was calculated at 95.9% on Thursday compared to 97.2% on Wednesday while the 30-year muni to Treasury ratio stood at 100.4% versus 101.4%, according to MMD.

 

Primary Market

 

"The market reacted very, very swiftly in correcting the cheapness that developed over the past month," one New York trader said. "The market basically took out the cheapness in four days [last Friday through Wednesday]. Now the hard part is determining if munis can outperform as we move into a seasonally positive period."

JPMorgan Securities priced the New York City Housing Development Corp.'s $503.74 million of multi-family housing revenue bonds. The sustainable neighborhood bonds consist of Series 2016 I-1, I-2, and index floating rate Series 2016 J-1 and J-2.

The $147.395 million of Series 2016 I-1 bonds were all priced at par to yield from 1.80% and 1.85% in a split 2020 maturity to 3.10% in a split 2027 maturity, 3.65% in 2031, 3.95% in 2036, 4.10% in 2041, 4.20% in 2046, and 4.30% in 2050.

The $100 million of Series 2016 I-2-A bonds were priced at par to yield 2% in 2020 with an optional tender maturity of 2019.

The $65.32 million of Series I-2-B bonds were priced at par to yield 1.85% and 2% in a split 2021 maturity with mandatory tenders in 2019 and 2020, respectively.

The $161.5 million of taxable Series 2016 J-1 index floating rates were priced to yield 100% of the three-month LIBOR plus 68 basis points in 2052. There is an optional tender maturity of 2022.

The $29.5 million of tax-exempt Series 2016 J-2 were priced to yield 100% of the three-month LIBOR plus 68 basis points in 2052. There is an optional tender maturity of 2022.

The deal is rated Aa2 by Moody's Investors Service and AA-plus by S&P Global Ratings.

Since 2006, the NYC HDC has sold roughly $13.1 billion of securities, with the largest issuance occurring in 2014, when it sold $1.9 billion. Its lowest year of bonding was in 2011, when it issued $305 million. The HDC has sold more than $1 billion in each of the past five years and eight times since 2006.

JPMorgan also priced the Phoenix Civic Improvement Corp., Ariz.'s $375.78 million of Series 2016 junior lien water system revenue refunding bonds.

The issue was priced to yield from 0.85% with a 1% coupon in 2017 to 3.26% with a 5% coupon in 2039. The deal is rated Aa2 by Moody's and triple-A by S&P.

Since 2006, the Phoenix CIC has sold $5.3 billion of securities, with the highest issuance occurring in 2014 when it sold $726 million. The lowest year of issuance came in 2012, when it sold $66 million.

JPMorgan priced the New Jersey Educational Facilities Authority's $140.69 million of revenue bonds, Series 2016B higher education capital improvement fund issue.

The issue was priced to yield from 1.90% with a 3% coupon in 2017 to 4.80% with a 5.5% coupon in 2033; a 2036 maturity was priced as 5s to yield 5.05%.

The deal is rated A3 by Moody's, triple-B-plus by S&P and A-minus by Fitch Ratings and Kroll Bond Rating Agency.

Siebert Cisneros Shank priced the Love Field Airport Modernization Corp., Texas' $116.85 million of Series 2017 general airport revenue bonds. The issuer is a not-for-profit acting on behalf of the city of Dallas.

The issue, which is subject to the alternative minimum tax, was priced as 5s to yield from 1.93% in 2019 to 3.95% in 2036.

The deal is rated A1 by Moody's and A by S&P and Fitch.

Morgan Stanley priced the King County Public Hospital District, Wash.'s $194.13 million of Series 2016 limited tax GO refunding bonds for the Valley Medical Center.

The issue was priced to yield from 1.94% with a 4% coupon in 2019 to 3.97% with a 5% coupon in 2037. The deal is rated A2 by Moody's and A by S&P.

In the short-term sector, JPMorgan priced Suffolk County, N.Y.'s $410 million of tax anticipation notes for 2017 taxes. The TANs were priced as 2s to yield 1.25% in 2017. The deal is rated SP1 by S&P and F1 by Fitch.

In the competitive arena, Los Angeles sold $144.07 million of taxable Series 2016A general obligation refunding bonds.

Morgan Stanley won the deal with a true interest cost of 2.97%. The issue was priced at par to yield from 1.05% in 2017 to 3.15% in 2026; a 2031 maturity was priced at par to yield 3.55%. The deal is rated Aa2 by Moody's.

The city last competitively sold comparable bonds on April 10, 2012, when Barclays Capital won $225.85 million of Series 2012A GO refunding bonds with a TIC of 2.22%.

 

Tax-Exempt Money Market Fund Inflows

Tax-exempt money market funds experienced inflows of $870.9 million, bringing total net assets to $130.96 billion in the week ended Dec. 5, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $54.8 million to $130.09 billion in the previous week.

The average, seven-day simple yield for the 237 weekly reporting tax-exempt funds was unchanged at 0.16% from previous week.

The total net assets of the 866 weekly reporting taxable money funds increased $4.58 billion to $2.572 trillion in the week ended Dec. 6, after an inflow of $20.59 billion to $2.568 trillion the week before.

The average, seven-day simple yield for the taxable money funds was steady at 0.15% from the previous week.

Overall, the combined total net assets of the 1,103 weekly reporting money funds rose $5.45 billion to $2.703 trillion in the week ended Dec. 6 after inflows of $20.64 billion to $2.698 trillion in the prior week.

 

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