Top quality municipal bonds finished weaker on Tuesday, traders said, as the first of the week's big deals started to hit the market.
The yield on 10-year benchmark muni general obligation rose two basis points to 1.49% from 1.47% on Monday, while the 30-year muni yield increased one basis points to 2.19% from 2.18%, according to the final read of Municipal Market Data's triple-A scale.
"While the betting odds assigned little chance for Brexit passage, poll numbers suggested a closer call," MMD Senior Market Analyst Randy Smolik said in a market comment, referring to the possible British exit from the European Union. "The stock and Treasury markets were being neutralized by the vote that will occur on Thursday."
Other analysts agreed that the market will remain cautious ahead of the referendum on Britain's membership in the European Union.
"State and local government debt in the United States is not immune from pre-Brexit vote uncertainty and bond market volatility in the run up to Thursday's British referendum," Janney Municipal Strategist Alan Schankel said in a market report.
In testimony before Congress on Tuesday, Federal Reserve Chair Janet Yellen said the Fed would remain cautious about raising interest rates, citing the upcoming Brexit vote in the U.K. and a sluggish labor market in the U.S.
"The actual path of the federal funds rate will depend on economic and financial developments and their implications for the outlook and associated risks. Stronger growth or a more rapid increase in inflation than the Committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly," Yellen said in prepared testimony before the Senate Banking committee. "Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate."
U.S. Treasuries were weaker. The yield on the two-year Treasury rose to 0.75% from 0.73% on Monday, while the 10-year Treasury yield gained to 1.70% from 1.67% and the yield on the 30-year Treasury bond increased to 2.50% from 2.47%.
The 10-year muni to Treasury ratio was calculated at 87.8% on Tuesday compared to 88.0% on Monday, while the 30-year muni to Treasury ratio stood at 87.7% versus 88.3%, according to MMD.
Primary Market
Morgan Stanley priced the city of Los Angeles' $1.46 billion of tax and revenue anticipation notes. The $300 million series was priced as 2s to yield 0.59% in 2017. The $1.16 billion series was priced as 3s to yield 0.68% in 2017.
"We are very pleased with the results," said Natalie Brill, chief of debt management for the city. "You are always a little concerned when you hit the market with such a large deal, not really knowing how you are going to do, but we are happy with the results of today's sale."
Proceeds of the sale will be used to make prepayments to its police, fire and city employees' retirement system; another $400 million will go to the cash flow fund. the city will save almost $37 million by paying early.The TRANs are rated MIG1 by Moody's Investors Service SP1-plus by S&P Global Ratings and F1-plus by Fitch Ratings.
Since 2006, the city has sold almost $13 billion of TRANs. Before this sale, the biggest issuance sold by Los Angeles was in 2015 when it offered $1.39 billion of notes.
Morgan Stanley also priced the New York Metropolitan Transportation Authority's $543.66 million of Series 2016B transportation revenue refunding bonds for retail investors ahead of the institutional pricing on Wednesday.
The issue was priced for retail to yield from 0.96% with 3.5% and 5% coupons in a split 2019 maturity to 2.46% with a 5% coupon in 2037. The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
And Morgan Stanley priced the New York State Housing Finance Agency's $302.69 million of Series 2016C affordable housing revenue bonds. The issue was priced at par to yield from 0.60% in 2016 to 2.35% and 2.40% in a split 2027 maturity; and to yield 2.75% in 2031, 3.05% in 2036, 3.25% in 2041, 3.35% in 2046 and 3.375% in 2049. The deal is rated Aa2 by Moody's.
Barclays Capital priced the Connecticut Health and Educational Facilities Authority's $500 million of revenue bonds for Yale University.
The $150 million of Series 2016A-1 bonds were priced at par to yield 1% in 2042 with a mandatory tender date of July 1, 2019. The $250 million of Series 2016A-2 bonds were priced as 2s to yield 1.97% in 2042 with a mandatory tender date of July 1, 2026. The $100 million of Series 2013A bonds were priced as a remarketing at par to yield 1% in 2042 with a mandatory tender date of July 1, 2019. The deal is rated triple-A by Moody's and S&P.
Wells Fargo Securities priced the Port of Morrow, Ore.'s $115.05 million of taxable Series 2016-2 transmission facilities revenue bonds for the Bonneville Cooperation Project No. 5. The issue was priced at par to yield 1.582% in 2020 and 1.782% in 2021. The deal is rated Aa1 by Moody's and AA by Fitch.
Bank of America Merrill Lynch priced the California Housing Finance Agency's $236.35 million of Series 2016A taxable home mortgage revenue bonds.
The issue was priced at par to yield from 1% and 1.35% in a split 2017 maturity to 3.392% and 3.442% in a split 2027 maturity; a 2031 maturity was priced at par to yield 3.848% and a 2036 maturity was priced at par to yield 2.794%. The deal is rated A2 by Moody's and AA-minus by S&P.
BAML priced Wayne County, Mich.'s $171.3 million of taxable limited tax general obligation tax revenue notes. The issue was priced at par to yield 4.25% in 2018. The notes are rated SP1 by S&P.
Citigroup priced Iowa's $265.93 million of Series 2016A IJobs Program special obligation refunding bonds. The issue was priced to yield from 0.64% with a 2% coupon in 2017 to 1.92% with a 5% coupon in 2029. The deal is rated Aa2 by Moody's and AA by S&P.
JPMorgan Securities priced the Reedy Creek Improvement District, Fla.'s $163.26 million of Series 2016A ad valorem tax bonds. The issue was priced to yield from 0.91% with a 5% coupon in 2019 to 2.71% with a 4% coupon in 2036. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
JPMorgan also priced the Gilbert Water Resources Municipal Property Corp., Ariz.'s $115.94 million of Series 2016 senior lien utility system revenue and revenue refunding bonds. The issue was priced to yield from 0.61% with a 4% coupon in 2017 to 2.49% with a 4% coupon in 2036. The deal is rated triple-ZA by S&P and AA-plus by Fitch.
In the competitive arena, the Virginia College Building Authority sold $234.39 million of Series 2016A educational facilities revenue refunding bonds under the public higher education financing program.
BAML won the bonds with a true interest cost of 2.11%. The issue was priced to yield from 1.02% with a 5% coupon in 2020 to 2.86% with a 3% coupon in 2039. The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
