Munis Strengthen as NYC's $804M GOs Price for Retail

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Top-quality municipal bonds ended stronger on Monday, according to traders, as the first of the week's big deals priced for retail investors, led by a large offering from the Big Apple.

The yield on the 10-year benchmark muni general obligation fell three basis points to 2.51% from 2.54% on Friday, while the yield on the 30-year dropped two basis points to 3.32% from 3.34%, according to the final read of Municipal Market Data's triple-A scale.

The muni market has been volatile since the election, with spikes of 22 basis points in yields on Nov. 14 and 10 basis points on Nov. 30, as municipal bonds weakened, raising borrowing costs for issuers.

"The market had been in a bad way," a New York trader said, "so it's not surprising to see it leveling off a bit."

U.S. Treasuries were little changed. The yield on the two-year Treasury rose to 1.12% from 1.11% on Friday, the 10-year Treasury declined to 2.38 from 2.39%, while the yield on the 30-year Treasury bond decreased to 3.05% from 3.06%.

The 10-year muni to Treasury ratio was calculated at 105.2% on Monday compared to 106.3% on Friday while the 30-year muni to Treasury ratio stood at 108.7% versus 108.8%, according to MMD.

 

Primary Market

This week, New York City is coming to market with over $1 billion of general obligation bonds in negotiated and competitive deals. On Monday, Jefferies opened a two-day retail order period on the city's $803.87 million of Fiscal 2008 and 2017 bonds before the institutional pricing on Wednesday.

The $650 million of Fiscal 2017 Subseries B-1 bonds were priced to yield from 1.92% with a 5% coupon in 2020 to 3.77% with a 5% coupon in 2037. The 2018 and 2019 maturities were offered as sealed bids. A 2043 maturity was priced as 4s to yield approximately 4.12%. No retail orders were taken in the 2031-2034 or 2041 maturities.

The $67.03 million of Fiscal 2008 Subseries J-7 bonds were priced to yield 1.92% with 4% and 5% coupons in a split 2020 maturity and 2.19% with 4% and 5% coupons in a split 2021 maturity.

The $86.84 million of Fiscal 2008 Subseries J-9 bonds were priced to yield 2.87% with 4% and 5% coupons in a split 2025 maturity, and 3% with a 5% coupon and at par in a split 2026 maturity, and 3.10% with 4% and 5% coupons in a split 2027 maturity.

About $650 million of the deal will fund capital projects and $152 million will convert index-rate bonds to fixed-rate, the city said.

On Wednesday, the Big Apple will competitively sell $200 million of taxable GOs in two separate offerings.

The deals are rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.

William Blair & Co. priced Connecticut's $328.38 million of Series 2016G GO refunding bonds on Monday for retail investors ahead of the institutional pricing on Tuesday.

The issue was priced to yield from 1.57% with 3% and 4% coupons in a split 2018 maturity to 2.80% with a 3% coupon in 2023. A 2017 maturity was offered as a sealed bid.

The deal is rated Aa3 by Moody's and AA-minus by S&P, Fitch and Kroll Bond Rating Agency.

In the competitive arena on Monday, Washington County, Ore., sold $107.93 million of Series 2016B full faith and credit obligations. JPMorgan Securities won the issue with a true interest cost of 2.75%.

The issue was priced to yield from 1.13% with a 5% coupon in 2018 to 3.47% with a 4% coupon in 2032. The deal is rated Aa1 by Moody's and AA-plus by S&P.

On Tuesday, Bank of America Merrill Lynch is set to price the Massachusetts Department of Transportation's $445 million of Series 2016A metropolitan highway system senior revenue refunding bonds. The deal is rated A3 by Moody's and A-plus by S&P and Fitch.

BAML is also set to price Mass. DOT's $197 million of Series 2016A metropolitan highway system revenue refunding bonds, subordinated commonwealth contract assistance secured, on Tuesday. This deal is rated Aa2 by Moody's and AA-plus by S&P and Fitch.

JPMorgan is expected to price the Phoenix Civic Improvement Corp., Ariz.'s $381 million of Series 2016 junior lien water system revenue refunding bonds on Tuesday. The deal is rated Aa2 by Moody's and AAA by S&P.

RBC Capital Market is set to price the Minneapolis-St. Paul Metropolitan Airports Commission's $226 million of Series 2016C non-AMT senior airport revenue bonds and Series 2016D AMT subordinate airport revenue bonds on Tuesday. The senior bonds are rated AA-minus by S&P and Fitch and the subordinate bonds are rated A-plus by S&P and Fitch.

Prior Week's Actively Traded Issues

Revenue bonds comprised 60.48% of new issuance in the week ended Dec. 2, up from 59.78% in the previous week, according to Markit. General obligation bonds comprised 35.10% of total issuance, down from 35.61%, while taxable bonds made up 4.42%, down from 4.61%.

Some of the most actively traded issues by type were from California and New Jersey. In the GO bond sector, the California 5s of 2034 were traded 28 times. In the revenue bond sector, the New Jersey Economic Development Authority 4s of 2041 were traded 99 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 20 times.

Previous Week's Top Underwriters

The top negotiated and competitive underwriters of last week included Morgan Stanley, Barclays Capital, Citigroup, Wells Fargo Securities and Bank of America Merrill Lynch, according to Thomson Reuters data. In the week of Nov. 27-Dec. 3, Morgan Stanley underwrote $2.05 billion, Barclays $1.69 billion, Citi $834.9 million, Wells Fargo $735.4 million and BAML $683.3 million.

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