Munis Weaker as New Deals Hit the Market

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Top-rated municipal bonds finished weaker on Tuesday, according to traders, as muni yields rose off their recent record lows.

The yield on 10-year benchmark muni general obligation rose four basis points to 1.33% from 1.29% on Monday, while the 30-year muni yield increased two basis points to 2.02% from 2.00%, according to the final read of Municipal Market Data's triple-A scale.

Monday's reads were the lowest for munis since MMD began calculating them in 1980.

U.S. Treasuries were mixed on Tuesday. The yield on the two-year Treasury rose to 0.61% from 0.60% on Monday, while the 10-year Treasury yield was unchanged from 1.46% and the yield on the 30-year Treasury bond was flat at 2.28%.

The 10-year muni to Treasury ratio was calculated at 91.1% on Tuesday compared to 88.5% on Monday, while the 30-year muni to Treasury ratio stood at 88.8% versus 87.6%, according to MMD.

 

Primary Market

Washington state competitively sold four separate issues totaling about $1.2 billion on Tuesday.

Bank of America Merrill Lynch won the $531.28 million of Series R-2017A various purpose general obligation refunding bonds with a true interest cost of 2.24%. The issue was priced as 4s to yield 0.52% in 2017 and to yield from 0.79% with a 4% coupon in 2019 to 2.07% with a 5% coupon in 2034.

BAML also won the $271.59 million of Series R-2017B motor vehicle fuel tax GO refunding bonds with a TIC of 2.39%. The issue was priced as 4s to yield 0.52% in 2017 and to yield from 0.92% with a 5% coupon in 2020 to 2.07% with a 5% coupon in 2034.

JPMorgan Securities won the $389.97 million of Series 2017A various purpose GOs with a TIC of 3.08%. The bonds were priced to yield from 1.41% with a 5% coupon in 2024 to 2.25% with a 5% coupon in 2041.

JPMorgan also won the $101.7 million of Series 2017T taxable GOs with a TIC of 1.46%. The bonds were priced to yield from par with a 0.50% coupon in 2017 to 1.87% with a 1.75% coupon in 2024.

All of the deals are rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.

Since 2006, the Evergreen State has issued about $29.5 billion of debt, with the largest issuance occurring in 2012 when it sold $3.5 billion of securities. The state has issued over $1 billion every year since 2006 and has issued at least $2 billion every year since 2008, and surpassed that mark for this year with Tuesday's sales. The lowest amount the state has sold in that period was in 2006 when it came to market with $1.6 billion.

In the negotiated sector on Tuesday, BAML priced San Antonio, Texas' $544.31 million of Series 2016 electric and gas system revenue refunding bonds.

The bonds were priced to yield from 0.86% with a 5% coupon in 2020 to 2.32% with a 4% coupon in 2034. The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.

This week, the commonwealth of Massachusetts will be selling three separate negotiated deals, totaling roughly $891 million.

On Tuesday, BAML priced the state's $521.92 million of Series 2016B GO refunding bonds for retail investors, ahead of institutional pricing on Wednesday.

The bonds were priced for retail to yield from 1.08% with a 5% coupon in 2022 to 2.66% with a 3% coupon in 2038. The 2017 and 2018 maturities were offered as sealed bids.

BAML will also price $250 million of GO consolidated loan of 2016 Series F taxable GO green bonds on Wednesday. Barclays is scheduled to price Massachusetts' $200 million of GO consolidated loan of 2014 Series D multi-modal bonds and Subseries D-1 bonds on Wednesday.

All three deals carry ratings of Aa1 by Moody's and AA-plus by Fitch.

The sales come as the state's revenue gap is projected to be about $200 million higher than forecast, estimated now at between $650 million and $950 million.

Morgan Stanley priced the Board of Regents of the Texas A&M University System's $208.71 million of Series 2016C revenue financing system revenue bonds. The issue was priced as 3s to yield 0.55% in 2017 and to yield from 0.88% with a 5% coupon in 2020 to 2.14% with a 5% coupon in 2040.

And Wells Fargo Securities priced the Board of Regents of the Texas A&M University System's $176.46 million of Series 2016D taxable revenue financing system revenue bonds. The issue was priced at par to yield about 10 basis points over the comparable Treasury security in 2017 to about 130 basis points over the comparable Treasury security in 2040.

Both deals are rated triple-A by Moody's, S&P and Fitch.

 

 

MSRB: Previous Session's Activity

The Municipal Securities Rulemaking Board reported 30,336 trades on Monday on volume of $9.37 billion.

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