Munis Mixed as Traders Await New Supply

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Prices of top-shelf municipal bonds finished mixed on Monday as traders prepared for the week's upcoming new issuance, topped by sales from the state of Minnesota, a green bond deal in Washington state and a tax-exempt and taxable offering from the state of Connecticut.

Secondary Market

The yield on the 10-year benchmark muni general obligation was steady from 2.19% on Friday, while the yield on the 30-year GO fell two basis points to 3.10% from 3.12%, according to the final read of Municipal Market Data's triple-A scale. Yields on some shorter-dated maturities were up by as much as two basis points.

Treasury prices were higher on Monday, with the yield on the two-year Treasury note slipping to 0.66% from 0.67% on Friday, while the 10-year yield fell to 2.15% from 2.20% and the 30-year yield decreased to 2.85% from 2.92%.

The 10-year muni to Treasury ratio was calculated on Monday at 102.0% versus 99.5% on Friday, while the 30-year muni to Treasury ratio stood at 108.5% compared to 106.8%, according to MMD.

Puerto Rico Trading

Trading in Puerto Rico issues was mostly subdued on Monday, with prices moving modestly lower, a development that had not been unexpected, according to several analysts. The Government Development Bank for Puerto Rico confirmed Monday afternoon that the Puerto Rico Public Finance Corp. missed most of a $58 million payment due to bondholders because of concerns over the commonwealth's liquidity. GDB president Melba Acosta Febo said in a press release that $628,000 of interest payment due on the loans was made using funds from a prior legislative appropriation.

"Should Puerto Rico finish [Monday] having notched its first payment default," Municipal Market Analytics said in a research note, "expect little broad market reaction away from Puerto Rico credits. The later will reasonably fall in price as less speculative current holders look to shed at least some of the Puerto Rico risk they retain."

MMA said Puerto Rico Electric Power Authority bonds were a "potential beneficiary," because "the utility and its lenders are at least proceeding, if not necessarily advancing, in an orderly fashion," in talks over a restructuring.

But MMA was cautious about the longer-term outlook.

"PREPA may thus temporarily register as a point of near?stability in the Puerto Rico capital structure. But beware: to the extent general government debt defaults become disorderly, the island's ability (and likely willingness) to deal with any bondholders may be compromised. We encourage Puerto Rico investors to consider default risk to now be elevated among all securities, regardless of relative protection," MMA said.

The most actively traded Puerto Rico bonds on Monday were the Aqueduct and Sewer Authority's senior lien revenue bonds, according to the Municipal Securities Rulemaking Board's EMMA website.

The PRASA Series 2012 A 5 1/4s of 2042 were trading at a low price of 64.95 cents on the dollar, a high yield of 8.618%, in 24 trades for $3.37 million. The biggest trade was when a customer bought $2.51 million at a price of 68.75, a yield of 8.126%. On Friday the bonds traded at a low price of 65.14 cents, a high yield of 8.592%, in 18 trades for $8.96 million. The biggest trade was when a customer sold $2.51 million of the 5 1/4s at a price of 68.50, a yield of 8.157%, according to EMMA.

The PRASA Series 2012 A 5s of 2033 were trading at a low price of 65.50 cents on the dollar, a high yield of 8.883%, in 23 trades for $1.73 million. The biggest trades were two inter-dealer trades for $320,000 each at a price of 68.125, a yield of 8.495% and at 68.25, a yield of 8.477%. On Friday, the bonds traded at a low price of 65.51, a high yield of 8.881%, in 12 trades for $240,000. The biggest trades were two inter-dealer trades for $30,000 each at a price of 68.25 a yield of 8.477% and at a price of 68.50, a yield of 8.441%, according to EMMA.

Other Puerto Rico issues were also listed on the EMMA website as trading on Monday.

The Puerto Rico Commonwealth Series 2012A general obligation public improvement refunding 5s of 2041 were trading at a low price of 56.50 cents on the dollar, a high yield of 9.566% in 35 trades for $1.39 million. The biggest trades were two inter-dealer trades for $200,000 each at a price of 59.65, a yield of 9.066% and at a price of 59.75, a yield of 9.051%. On Friday, the 5s were trading at a low price of 57.20, a high yield of 9.451% in 49 trades for $1.63 million. The biggest trade was an inter-dealer trade for $190,000 at a price of 60.25, a yield of 8.976%, according to EMMA.

The Puerto Rico Commonwealth Series 2014A GO 8s of 2035 traded at a low price of 68.665 cents on the dollar, a high yield of 12.227%, in eight trades for $3.10 million. The largest trade was when a customer bought $2 million of the 8s for 69.25, a yield of 12.121%. On Friday, the bonds traded at a low price of 70.032, a high yield of 12.304% in 17 trades for $19.08 million. The largest trade was for $5 million when a customer bought the GOs for 69.625, a yield of 12.054%, according to EMMA.

Prior Week's Actively Traded Issues by Sector

Revenue bonds comprised 52.60% of new issuance in the week ended July 31, down from 54.76% in the previous week, according to Markit. General obligation bonds comprised 38.08% of total issuance, up from 36.36%, while taxable bonds made up 9.32%, up from 8.80%.

Some of the most actively traded issues during the week were in New York, Puerto Rico and California, according to Markit.

In the revenue bond sector, the New York Metropolitan Transportation Authority 5s of 2035 were traded 76 times. In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 were traded 58 times. And in the taxable bond sector, the California Earthquake Authority revenue 2.805s of 2019 were traded 13 times, Markit said.

Primary Market

Total volume for the week is estimated at $7.8 billion, consisting of $5.58 billion of negotiated deals and $2.20 billion of competitive sales.

On the competitive calendar are two separate sales from the state of Connecticut totaling $500 million.

Scheduled to sell on Tuesday, the issues consist of $250 million of Series 2015E GOs and $250 million of Series 2015B taxable GOs. Both sales are rated Aa3 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.

The last time the state competitively sold comparable bonds was on Aug. 6, 2014, when JPMorgan won $300 million of Series 2014E GOs with a TIC of 3.03%.

Leading off the negotiated slate, is a $923.84 million green bond sale from Sound Transit, the Central Puget Sound Regional Transit Authority, Wash.

The sales tax improvement bonds are slated to be priced by JPMorgan on Tuesday, and are initially structured as Series 2015S-1 green bonds and Series 2015S-2 green bonds. The issue is initially structured as serials running from 2018 through 2050. The issue is rated Aa2 by Moody's and triple-A by S&P.

Topping the competitive slate are five separate sales on Wednesday from the state of Minnesota totaling over $1 billion.

The offerings consist of $386.50 million of Series 2015D general obligation state various purpose refunding bonds; $376.11 million of Series 2015A GO state various purpose refunding bonds; $310 million of Series 2015B GO state trunk highway bonds; $14.89 million of Series 2015E GO state trunk highway refunding bonds; and $7.2 million of Series 2015C taxable GO state various purpose bonds.

The state last competitively sold comparable bonds on Aug. 12, 2014, when Bank of America Merrill Lynch won $429.67 million of Series 2014A GO state various purpose bonds with a true interest cost of 2.83%.

And Loudoun County, Va., plans a competitive sale of $117.53 million of Series 2015 water and sewer system revenue and refunding bonds on Wednesday. The issue is rated triple-A by Moody's and Fitch.

Citigroup is expected to price the New York State Environmental Facilities Corp.'s $370 million of Series 2015D state revolving funds revenue bonds on Wednesday after a one-day retail order period. The issue is initially structured as serials running from 2016 through 2035, with a term in 2040. The bonds are rated triple-A by Moody's, S&P and Fitch.

Siebert Brandford Shank is scheduled to price the Oakland Unified School District in Alameda, Calif.'s $356.18 million of GOs on Wednesday. The issue consists of $175 million of Series 2015A Election of 2012 GOs, $5 million of Series 2015B Election 02012 taxable GOs, and $176.18 million of GO refunding bonds.

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