Munis Strengthen as Last of Supply Hits

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Top shelf municipal bonds were stronger on Thursday, as yields dropped from one to four basis points after the market took in the last major supply of the week.

Primary Market

Citi priced the state of Oregon Facilities Authority's $288.585 million of revenue bonds for the Legacy Health Project. The bonds were priced and repriced to yield from 1.61% with a 5% coupon in 2022 to 3.08% with a 5% coupon in 2035. A term bond in 2037 was priced to yield 3.62% with a 3.5% coupon; a term bond in 2039 was priced to yield 3.64% with a 3.5% coupon; a term bond in 2041 was priced to yield 3.59% with a 4% coupon and a term bond in 2046 was priced to yield 3.64% with a 4% coupon and 3.26% with a 5% coupon in a split maturity. The deal is rated A1 by Moody's Investors Service and AA-minus by S&P Global Ratings.

Well Fargo priced and repriced the Norman, Okla., Regional Hospital Authority's $136.235 million of hospital revenue refunding bonds for the Norman Regional Hospital Authority Obligated Group. The bonds were repriced to yield from 1.23% with a 3% coupon in 2017 to 3.25% with a 5% coupon in 2031. A term bond in 2037 was priced to yield 3.89% with a 4% coupon and 3.54% with a 5% coupon in a split maturity. The deal is rated Baa1 by Moody's and BBB-plus by S&P.

Loop Capital Markets said the Pennsylvania Turnpike Commission's $197.455 million sale of subordinate revenue bonds has been postponed to "a future date that has not yet been scheduled." It didn't give a reason for the delay.

In the competitive arena, the state of Virginia sold $184.86 million of general obligation and refunding bonds. Wells Fargo won the bidding with a true interest cost of 2.15%. The $70.815 million new money bonds were priced to yield from 0.69% with a 5% coupon in 2017 to 3.00% with a 3% coupon in 2036. The $114.045 million refunding bonds were priced to yield from 0.69% with a 5% coupon in 2017 to 2.90% with a 3% coupon in 2034. The deal is rated triple-A by Moody's, S&P and Fitch Ratings.

Since 2006, the commonwealth of Virginia has sold $2.67 billion of securities, with the largest issuance occurring in 2009, when it sold $412 million. The lowest issuance was in 2012, when the Old Dominion state sold just $95 million.

Also, the Orange County, Calif., Sanitation District auctioned $107.4 million of revenue refunding certificate of anticipation notes, which were won by Bank of America Merrill Lynch with a TIC of 0.87%. The deal is rated triple-A by S&P and Fitch.

Monroe County, N.Y., auctioned $89.065 million of public improvement serial bonds, which were won by JPMorgan with a TIC of 2.48%. The bonds were priced to yield from 1.00% with a 3% coupon in 2017 to 3.36% with a 3.25% coupon in 2036. The deal is rated Baa1 by Moody's and A by S&P. Assured Guaranty insured $68.605 million in the 2020 through 2036 maturities, which are rated A2 by Moody's, AA by S&P and AA-plus by Kroll.

Secondary Market

Top-shelf municipal bonds were stronger at Thursday's market close, as the yield on the 10-year benchmark muni general obligation was one basis point lower to 1.72% from 1.73% on Wednesday, while the yield on the 30-year was two basis points lower to 2.54% from 2.56%, according to a final read of Municipal Market Data's triple-A scale.

"After spreads tended to widen into the supply, some active trading names saw spreads starting to normalize," said Randy Smolik, MMD's senior market analyst. "Some of these bonds had seen spread widening into this week because of the hefty new issuance. Now that the $14 billion primary calendar was winding down, buyers could focus again on the muni secondary and some of the active bond spreads were starting to normalize."

U.S. Treasuries were mixed at the close on Thursday. The yield on the two-year Treasury was up to 0.82% from 0.80% on Wednesday, the 10-year Treasury yield was flat at 1.75% and the yield on the 30-year Treasury bond decreased to 2.50% from 2.51%.

On Thursday, the 10-year muni to Treasury ratio was calculated at 98.6% compared to 98.9% on Wednesday, while the 30-year muni to Treasury ratio stood at 101.7% versus 101.8%, according to MMD.

Tax-Exempt Money Market Fund Inflows

Tax-exempt money market funds experienced inflows of $290.6 million, bringing total net assets to $127.64 billion in the week ended Oct. 17, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.96 billion to $127.35 billion in the previous week. This marks the first time this category has posted gains since the week of March 7.

The average, seven-day simple yield for the 242 weekly reporting tax-exempt funds dropped to 0.32% from 0.34% in the previous week.

The total net assets of the 860 weekly reporting taxable money funds decreased $7.51 billion to $2.469 trillion in the week ended Oct. 18, after an outflow of $16.87 billion to $2.477 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 0.14% from 0.13% the prior week.

Overall, the combined total net assets of the 1,102 weekly reporting money funds fell $7.22 billion to $2.597 trillion in the period ended Oct. 18, which followed an outflow of $18.83 billion to $2.604 trillion.

 

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