Back to school: Cal State, Florida BOE price

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The education sector dominated the municipal bond market on Thursday as four big deals hit the screens led by issuers in California, Florida and Colorado.

Primary market
Barclays Capital priced the Trustees of the California State University’s (Aa2/AA-/NR) $544 million of systemwide revenue bonds.

The deal consists of $462.435 million of Series 2018A revenue bonds, $81.285 million of Series 2019B taxable revenue bonds, $65.625 million of Series 23020 forward delivery revenue bonds and $50 million of Series 2016B-1 bonds which are being remarketed.

BofA Securities is co-lead manager. Loop Capital Markets, Raymond James, Academy Securities, Blaylock Van, Cabrera Capital Markets, Citigroup, FTN Financial Capital Markets, Goldman Sachs, IFS Securities, JPMorgan Securities, Morgan Stanley, RBC Capital Markets, Stifel, UBS Financial, Wells Fargo Securities and The Williams Capital Group are serving as co-managers. The bond counsel is Orrick.

Proceeds will be used to pay for the acquisition, construction and improvement of some CSU facilities and to refund certain outstanding revenue bonds.

In the competitive arena, the Florida Board of Education (Aaa/AAA/AAA) sold $234.155 million of Series 2019C unlimited tax general obligation public education capital outlay bonds.

BofA won the issue with a true interest cost of 2.4076%.

Proceeds will be used to refund a portion of the BOE’s outstanding Series 2006G capital outlay Build America Bonds and Series 2009F BABs. The state’s Division of Bond Finance is the financial advisor. The bond counsel is Squire Patton.

Colorado sold $400 million of education loan program tax and revenue anticipation notes. Morgan Stanley won the TRANs with a bid of 3% and a premium of $6,896,000, an effective rate of 1.156951%.

RBC Capital Markets is the financial advisor; Kutak Rock is the bond counsel.

Goldman Sachs priced the California Municipal Finance Authority’s (Baa3/NR/NR) $175.975 million of Series 2019 student housing revenue bonds for the CHF-Riverside II, UCR North District Phase I student housing project. The 2023-2028 and 2043-2044 maturities are insured by Build America Mutual and rated AA by S&P Global Ratings.

Thursday’s bond sales

Click here for the Florida BOE sale

Click here for the Colorado TRANS sale

Click here for the California MFA pricing

A rosy rate forecast from LM Capital

Despite some political and economic challenges impacting the future of interest rates, a pronounced decline is not likely, according to Luis Maizel, senior managing director at LM Capital Group.

“I don’t believe the rates are going to fall much more in the U.S. — and if there is a surprise it will be in an upswing,” Maizel said, noting that he doesn’t foresee recession in the near future either.

A quarter point drop in short-erm rates is expected at the upcoming Federal Open Market Committee later this month, prompted by several factors, the co-founder of the San Diego-based investment management firm noted.

“The pressure from [President Doald] Trump, though not specifically mentioned, is pressuring [Fed Chair Jerome] Powell; the announcement from the EU that they will continue the long-term easing, and the inversion of the curve are all pointing in that direction,” he said.

The FOMC at its June meeting voted 9-1 to keep the benchmark rate in a target range of 2.25% to 2.5%. It last raised the fed funds rate to 2.5% at its December 19, 2018, meeting. At the same time, however, he said the stock market and the bond market are sending contrarian signals ahead of the meeting.

“Stocks are near their all-time highs as though the economy will continue strong, and the bond market is acting as if a recession is around the corner,” Maizel explained.

Given the current economic conditions, recession is not currently a concern, according to Maizel. “Globalization has taken care of the traditional boom/bust cycle and the only justification is that ‘a recession is due,’ ” he said.

Maizel said emerging markets currently have a tail wind as lower U.S. interest rates favor countries that have dollar-denominated debt and the steady growth in the U.S. is maintaining the price of commodities fairly high.

“Most important, as interest rates drop in the U.S., the search for income by investors becomes a more important issue, creating a 'risk on' environment,” Maizel added. “Risk-adjusted spreads in emerging market bonds are still at an acceptable level creating a good buying opportunity,” he said.

Meanwhile overseas, he said global tensions are impacting the financial markets, pointing to “political upheaval” as a recurring headline. He cited troubles in the United Kingdom with Brexit; as well as tensions in Iran, North Korea, France with the Yellow Jackets, Israel unable to form a government, Mexico with the resignation of the Finance Secretary, and Greece returning to a conservative leader to name a few.

“Financial markets are responding to these events with caution and uncertainty,” he said.

Muni money market funds keep inflow streak alive
Tax-exempt municipal money market fund assets grew by $1.54 billion, with total net assets settling at $139.40 billion in the week ended July 8 according to the Money Fund Report, a publication of Informa Financial Intelligence. This marked the third week in a row inflows have exceeded $1 billion.
The average seven-day simple yield for the 187 tax-free and municipal money-market funds sank to 1.15% from 1.43% in the previous week.

Taxable money-fund assets increased $39.58 billion in the week ended July 9, bringing total net assets to $3.095 trillion, the fourth consecutive week that the taxable total has reached or exceeded $3 trillion.

The average, seven-day simple yield for the 804 taxable reporting funds increased to 2.02% from 2.00% the prior week.

Overall, the combined total net assets of the 991 reporting money funds rose $41.12 billion to $3.238 trillion in the week ended July 9.

Secondary market
Munis were stronger in late trading on the MBIS benchmark scale, with yields falling by three basis points in the 10-year and by one basis point in the 30-year. High-grades were also stronger, with MBIS’ AAA scale showing yields dropping by two basis points in the 10-year and by less than a basis point in the 30-year.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO fell two basis points while the yield on the 30-year was unchanged.

"The ICE muni yield curve continues to steepen again today with the short end down one basis point," ICE Data Services said in a market comment. "Tobaccos and high-yield are quiet and unchanged as the market digests Fed Chairman Jerome Powell’s congressional testimony. Taxable yields are creeping up today with the 10-year up 2.5 basis points."

The 10-year muni-to-Treasury ratio was calculated at 74.5% while the 30-year muni-to-Treasury ratio stood at 86.3%, according to MMD.

Treasuries were weaker as stocks traded higher. The Treasury three-month was yielding 2.161%, the two-year was yielding 1.861%, the five-year was yielding 1.872%, the 10-year was yielding 2.126% and the 30-year was yielding 2.645%.
Previous session's activity
The MSRB reported 38,473 trades Wednesday on volume of $14.10 billion. The 30-day average trade summary showed on a par amount basis of $11.82 million that customers bought $6.25 million, customers sold $3.56 million and interdealer trades totaled $2.01 million.

California, New York and Texas were most traded, with the Golden State taking 17.519% of the market, the Empire State taking 12.167% and the Lone Star State taking 8.701%.

The most actively traded security was the New York Metropolitan Transportation Authority Series 2019C BAN 4s of 2020, which traded 24 times on volume of $39.52 million.

BB Indexes continue to trend down
In the week ended July 3, the weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, dipped one basis point to 3.69% from 3.70% the previous week.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields dropped three basis points to 3.46% from 3.49% the week before. It is at its lowest level since Jan. 4, 2018, when it was at 3.44%.

The 11-bond GO Index of higher-grade 11-year GOs fell three basis points to 3.00% from 3.03% the previous week. It is at its lowest level since Jan. 4, 2018, when it was at 2.94%.

The Bond Buyer's Revenue Bond Index declined three basis points to 3.94% from 3.97% the week before. It is at its lowest level in 79 weeks, when it was at 3.92%.

The yield on both the U.S. Treasury's 10-year and 30-year Treasurys increased 17 basis points to 2.13% and 2.64%, respectively.

Treasury auctions announced
The Treasury Department announced these auctions:

  • $14 billion 10-year TIPs selling on July 18;
  • $26 billion 364-day bills selling on July 16;
  • $36 billion 182-day bills selling on July 15; and
  • $36 billion 91-day bills selling on July 15.

Treasury auctions bills
The Treasury Department Thursday auctioned $35 billion of four-week bills at a 2.135% high yield, a price of 99.833944. The coupon equivalent was 2.174%. The bid-to-cover ratio was 3.04. Tenders at the high rate were allotted 97.39%. The median rate was 2.120%. The low rate was 2.100%.

Treasury also auctioned $35 billion of eight-week bills at a 2.130% high yield, a price of 99.668667. The coupon equivalent was 2.173%. The bid-to-cover ratio was 2.99. Tenders at the high rate were allotted 64.15%. The median rate was 2.115%. The low rate was 2.090%.

Additionally, Treasury auctioned $16 billion of 29-year 10-month bonds with a 2 7/8% coupon at a 2.644% high yield, a price of 104.742265. The bid-to-cover ratio was 2.13. Tenders at the high yield were allotted 19.72%. The median yield was 2.570%. The low yield was 1.888%.

Gary E. Siegel contributed to this report.

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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Municipal bond funds California State University Trustees State of California State of Texas State of New York State of Colorado State of Florida Florida State Board of Education
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