The municipal bond primary market returned to life on Tuesday as issuers in Massachusetts, Virginia and Minnesota offered new tax-exempts to bond-hungry investors.
In secondary action, municipals weakened along with Treasuries as stock prices soared.
Bank of America Merrill Lynch and TD Securities won the bidding for biggest deals of the day -- Massachusetts’ $600 million of unlimited tax general obligation bonds offered in two separate sales.
BAML won the $400 million of consolidated loan of 2018 Series A GOs with a true interest cost of 3.7109%. RBC Capital markets had the cover bid of 3.7185%. The issue was priced as 5s to yield from 2.57% in 2033 to 2.84% in 2048.
TD won the $200 million of consolidated loan of 2018 Series B GOs with a TIC of 2.5094%. Citigroup had the cover bid of 2.5274%. The issue was priced as 5s to yield from 1.56% in 2020 to 2.42% in 2032.
Both deals are rated Aa1 by Moody’s Investors Service, AA by S&P Global Ratings and AA-plus by Fitch Ratings.
The state said it received eight bids for the $400 million Series A bonds and nine bids for the $200 million Series B bonds.
“We are pleased with the results of our two competitive GO bond sales this morning, which went very well in the backdrop of a choppy Treasury market and significant cuts in MMD across the curve during the day,” said Sue Perez, Massachusetts' deputy treasurer for debt management. “These results were in line with where our GO bond transactions have priced recently, which demonstrates the strong and consistent demand from investors of Massachusetts GO bonds. These results were impressive in light of today’s volatile bond markets.”
Since 2008 Massachusetts has sold about $28.5 billion of bonds, with the most issuance occurring in 2016 when it sold $4.8 billion. The Bay State's least issuance came in 2008 when it sold $1.19 billion.
Fairfax County, Va., sold $225.19 million of Series 2018A unlimited tax GO public improvement bonds.
Citigroup won the bonds with a TIC of 2.6642%. The issue was priced to yield from 1.38% with a 2% coupon in 2018 to 2.90% in 2037.
The deal is rated triple-A by Moody’s, S&P and Fitch.
And the Roseville Area Schools Independent School District No. 623, Minn., sold $139.24 million of Series 2018A unlimited tax GO school building bonds.
BAML won the bonds with a TIC of 3.1151%. The issue was priced to yield from 1.51% with a 5% coupon in 2019 to 3.12% with a 4% coupon in 2038.
The deal was sold under the Minnesota School District Credit Enhancement Program and rated Aa2 by Moody’s.
On Wednesday, Morgan Stanley is expected to price the Stanford Health Care’s $500 million of Series 2018 corporate CUSIP taxable bonds. The deal is rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.
In the competitive arena on Wednesday, Worcester, Mass., is selling $103.795 million of GOs in two separate sales.
The deals consist of $75.195 million of municipal purpose loan of 2018 Series A GOs and $28.6 million of taxable Series B GOs.
The deals are rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.
On Thursday, RBC Capital Markets is expected to price the Pennsylvania Commonwealth Financing Authority’s $410 million of Series 2018A taxable revenue bonds for the Plancon program. The deal is rated A1 by Moody’s, A by S&P and A-plus by Fitch.
JPMorgan Securities is set to price the Illinois Finance Authority’s $218.67 million of Series 2018 taxable revenue refunding bonds for the Ann and Robert H. Lurie Children’s Hospital of Chicago. The deal is rated AA-minus by S&P and AA by Fitch.
The MBIS municipal non-callable 5% GO benchmark scale was mixed in late trading.
The 10-year muni benchmark yield fell to 2.271% on Tuesday from the final read of 2.275% on Monday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield rose to 2.771% from 2.751%.
The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipal bonds finished weaker on Tuesday. The yield on the 10-year benchmark muni general obligation rose four basis points to 2.05% from 2.01% on Monday, while the 30-year GO yield gained five basis points to 2.64% from 2.59%, according to the final read of MMD’s triple-A scale.
Equities added to their gains, pushing Treasury bond yields to their highest level in nine months.
U.S. Treasuries were weaker in late activity. The yield on the two-year Treasury gained to 1.96% on Tuesday from 1.95% on Monday, the 10-year Treasury yield rose to 2.55% from 2.48% and the yield on the 30-year Treasury increased to 2.88% from 2.81%.
In late trade, the Dow Jones Industrial Average was up about 0.49%, the S&P 500 rose around 0.29% while the Nasdaq gained around 0.24%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 80.5% compared with 81.0% on Monday, while the 30-year muni-to-Treasury ratio stood at 91.5% versus 92.1%, according to MMD.
Oppenheimer: Munis well positioned technically speaking
Munis are well-positioned entering 2018 against a backdrop of compelling market technicals that are likely to bring lower supply and active buyer interest from individuals and mutual funds, Jeffery Lipton, managing director and head of municipal research and strategy for Oppenheimer wrote in a report released Tuesday morning.
“Expect a more pronounced January effect with heavy reinvestment needs and a lighter-than-usual calendar; Similar to 2017, the unique technical environment should be a key driver of performance in 2018 and munis can be expected to outperform UST at least in the early months and a continuation of net negative supply may extend this outperformance.”
He also said that tax-reform was a game changer for 2017. After surpassing $400 billion last year, 2018 municipal volume will be influenced by rates and curve positioning, the universe of currently refundable bonds and the outlook for the economy in general and for muni credit specifically.
“Extended periods of the ‘risk-off’ trade could contain the upward trajectory of rates and even push them lower, thus placing 2018 volume above forecasted range of [between] $325 billion and $335 billion. On the flip side, a tighter Fed policy and higher UST yields could keep 2018 issuance below forecast.”
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 40,823 trades on Monday on volume of $10.11 billion.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.