Yields Steady as Market Readies for Port Authority Deal

Prices of top quality municipal bonds were slightly weaker Thursday morning, as yields on some maturities were as much as one basis point higher.

A day after Chicago O’Hare’s $2 billion deal hit screens, institutional investors expect to get the Port Authority of New York and New Jersey’s $2 billion deal.

“It doesn’t look like the market is having any problems digesting all of this issuance,” said a Midwest trader. “All of the deals are getting done and cleaned up.”

Primary Market

On Thursday, Wells Fargo Securities will price the Port Authority of New York and New Jersey’s roughly $2 billion of revenue bonds for institutions, after a retail order period on Wednesday.

The $305.195 million of AMT 193rd Series bonds were priced for retail to yield from 0.73% with a 4% coupon in 2017 to 3.50% with a 5% coupon in 2035. No retail orders were taken for the 2028-2034 maturities. The 2016 maturity is offered as a sealed bid.

The $1.195 billion of non-AMT 194th Series bonds were priced for retail to yield from 0.60% with a 4% coupon in 2017 to 3.18% with a 5% coupon in 2035. A term bond in 2045 was priced as 4s to yield 3.86%. No retail orders were taken for the 2028-2029, 2031-2034, 2040 and 2055 maturities.

There is also a $500 million taxable portion to the deal.

Bank of America Merrill Lynch is expected to price the California Veterans’ $446 million general obligation bonds for institutions on Thursday in a combined refunding and new money sale, after a retail order period on Wednesday.

The $152.295 million of non-AMT Series CK bonds were priced for retail at par to yield from 0.80% in 2016 to 3.05% in 2028. Term bonds in 2030, 2035 and 2040 were priced at par to yield 3.50%, 3.75% and 3.95%. The 2016 maturity was offered as a sealed bid.

The $128.61 million of non-AMT Series CL bonds were priced for retail at par to yield from 0.80% in 2017 to 1.35% in 2019. Term bonds in 2030 and 2034 were priced at par to yield 3.50% and 3.75%. The 2016 maturity was offered as a sealed bid.

The $164.79 million AMT Series CM bonds were priced for retail at par to yield 1.00% in 2017 and to yield from 1.95% in 2020 to 2.90% in 2024. The bonds were also priced at par in 2026 to yield 3.15% and to yield from 3.85% in 2030 to 4.00% in 2032. A term bond in 2036 was priced at par to yield 4.10%.

New money proceeds will fund home loans to veterans.

"Our demand is pretty high," said California Department of Veterans Affairs Deputy Secretary Theresa Gunn. "We have a pretty strong growth pattern and expect to do more loans this year."

Cal-Vets' loan volume has grown from $8.7 million in fiscal 2012-13, to $70 million in fiscal 2013-14 and $107 million in fiscal 2014-15, Gunn said.

The deal is rated Aa2 by Moody’s, AA by S&P and AA-minus by Fitch.

Secondary Trading

Treasury prices were slightly weaker on Thursday morning, with the yield on the two-year Treasury rising to 0.64% from 0.62% from Wednesday, while the 10-year yield staying flat at 2.07% and the 30-year yield also staying unchanged at 2.89%.

An early morning read of the scale on Thursday, indicates muni yields are mostly steady with only the 2028-2031 maturities seeing as much as a one basis point increase.

The yield on the 10-year benchmark muni general obligation closed Wednesday one basis point higher at 2.02% from 2.01% on Tuesday, while the 30-year GO rose one basis point to 3.07% from 3.06%, according to a final read of the Municipal Market Data's triple-A scale.

The 10-year muni to Treasury ratio was calculated on Wednesday at 98.1% versus 98.8% on Tuesday, while the 30-year muni to Treasury ratio stood at 106.4% compared to 106.5%, according to MMD.

Tax-Exempt Money Market Funds Add $2.99 Billion

Inflows of $2.99 billion into tax-exempt money market funds boosted total net assets to $246.95 billion in the week ended Oct. 7 – ending a three-week spate of outflows, according to The Money Fund Report, a service of iMoneyNet.com.

The prior week total net assets were $243.95 billion.

The average, seven-day yield for the 377 tax-exempt money market funds remained at 0.01% for the 127th consecutive week.

Meanwhile, the 950 weekly reporting taxable money funds saw gains of $8.17 billion, which increased total net assets to $2.466 trillion in the week ended Oct. 6. That compared to $2.458 trillion in the prior week.

The average, seven-day yield for the taxable money funds remained 0.02% for the 38th consecutive week.

Overall, the combined total net assets of the 1,327 weekly reporting money funds increased by $11.17 billion and ended the week of Oct. 6 at $2.713 trillion, up from $2.702 trillion in the prior week.

MSRB Previous Session's Activity

The Municipal Securities Rulemaking Board reported 36,950 trades on Wednesday on volume of $8.734 billion.

Keeley Webster and Christine Albano contributed to this report

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