Cal waters $1B muni bond deal sells as DFW takes IOI on its $1B taxable offering

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Municipal yields were steady Wednesday as the market looked to two big deals that came from California and Texas issuers. ICI reported another billion-plus of inflows.

Secondary activity was quiet for most of the day as the Federal Reserve met in Washington to decide the course of U.S. monetary policy. In the afternoon, the Federal Open Market Committee announced it would keep rates stead for the foreseeable future.

“The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. Following sharp declines, economic activity and employment have picked up somewhat in recent months but remain well below their levels at the beginning of the year. Weaker demand and significantly lower oil prices are holding down consumer price inflation,” the FOMC said in its statement.

“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term," the Fed said. "In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent."

The FOMC adde that it expects to keep to this target range until it is confident "the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Primary market
On Wednesday, Morgan Stanley priced the California Department of Water Resources’ (Aa1/AAA/NR/NR) $1.06 billion of tax-exempt and taxable water system revenue bonds for the Central Valley project.

The $545.14 million of Series BB tax-exempts were repriced with 5% coupons to yield from 0.12% in 2022 to 1% in 2035. The exempts had been tentatively priced with 5% coupons to yield from 0.12% in 2022 to 1.07% in 2035.

The $514.97 million of Series BC taxable were being priced at par and given price guidance at about 18 basis points above the comparable U.S. Treasury in 2021 to 123 basis points above the comparable Treasury in 2035.

Morgan Stanley took indications of interest on the cities of Dallas and Fort Worth, Texas’ (A1/A/A+/AA) $1.195 billion of Series 2020C taxable joint revenue refunding bonds for Dallas Fort Worth International Airport.

The indications showed the deal was at about 110 basis points above the comparable U.S. Treasury in 2023 to 235 basis points above the comparable Treasury in 2036, 200 basis points above Treasuries in 2040 and 190 basis points above Treasuries in 2050.

The deal is expected to be priced on Thursday.

Citigroup priced Brownsville, Texas’ (/AA//) $118.05 million of tax-exempt and taxable utility system revenue refunding bonds.

The $55.59 million of Series 2020 tax-exempts were priced to yield from 0.38% with a 5% coupon in 2021 to 2.22% with a 2.125% coupon in 2040; a 2045 maturity was priced to yield 1.97% with a 4% coupon and a 2050 maturity was priced to yield 2.25% with a 3% coupon.

The $62.46 million of Series 2020A taxables were priced to yield from 45 basis points above the comparable Treasury in 2021 to 130 basis points above Treasuries in 2031.

The deal was insured by Assured Guaranty Municipal Corp.

JPMorgan Securities priced Nassau County, N.Y.’s (NR/SP1+/NR/NR) $206.845 million of general obligation revenue anticipation notes.

The $118.61 million of Series 202B RANs, due Dec. 21, were priced to yield 0.25% with a 4% coupon. The $88.235 million of Series 2020C RANs, due March 15, 2021, were priced to yield 0.30% with a 4% coupon.

ICI: Muni bond funds see $3.6B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $3.622 billion in the week ended July 22, the Investment Company Institute reported Wednesday.

It marked the 12th week in a row the funds saw inflows. In the previous week, muni funds saw an inflow of $1.743 billion, ICI said.

Long-term muni funds alone had an inflow of $2.962 billion in the latest reporting week after an inflow of $1.390 billion in the prior week.

ETF muni funds alone saw an inflow of $659 million after an inflow of $353 million in the prior week.

Taxable bond funds saw combined inflows of $19.485 billion in the latest reporting week after inflows of $12.780 billion in the prior week.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $13.299 billion after outflows of $4.947 billion in the previous week.

Secondary market
“Despite some distractions at month-end, municipal activity is not deviating from the strong-tone theme,” according to FHN Financial Senior Vice President Kim Olsan. “Even though generic yields only improved a nominal amount, both new issue and secondary bidding continue to serve up spread compression at ultra-low yields.”

Municipals were steady, according to final readings on Refinitiv MMD’s AAA benchmark scale.

MMD reported yields on the 2021 and 2023 GO munis were unchanged at 0.13% and 0.15%, respectively. The yield on the 10-year GO muni was flat at 0.70% while the 30-year yield was steady at 1.42%.

The 10-year muni-to-Treasury ratio was calculated at 120.5% while the 30-year muni-to-Treasury ratio stood at 116.2%, according to MMD.

The ICE AAA municipal yield curve showed short yields flat at 0.120% in 2021 and 0.131% in 2022. The 10-year maturity was unchanged at 0.671% and the 30-year was flat at 1.442%.

ICE reported the 10-year muni-to-Treasury ratio stood at 123% while the 30-year ratio was at 113%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.12% and the 2022 maturity at 0.15% while the 10-year muni was at 0.69% and the 30-year stood at 1.42%.

The BVAL AAA curve showed the 2021 maturity yielding 0.10% and the 2022 maturity at 0.13% while the 10-year muni was at 0.68% and the 30-year stood at 1.44%.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were mixed as stock prices traded up.

The three-month Treasury note was yielding 0.112%, the 10-year Treasury was yielding 0.581% and the 30-year Treasury was yielding 1.247%.

The Dow rose 0.60%, the S&P 500 increased 1.20% and the Nasdaq gained 1.40%.

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Primary bond market Secondary bond market Municipal bond funds State of California California Department of Water Resources State of Texas City of Dallas, TX City of Fort Worth, TX Dallas Fort Worth International Airport Board
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