Muni yields held steady as a surge of new issuance hit the market on Tuesday, with six deals of at least $500 million pricing from big name issuers in California, Connecticut, New York and Texas.
"It feels to me that the market is turning the corner today" after yields had been rising said one New York trader. "The treasury market holding yesterday and today is part of why, but there are a few other observations that help back up my opinion."
First, California was bought by Citi at tighter spreads through MMD in first few years, out to plus 20 basis points in 10 years, the trader said. In addition, a Wake Forest competitive deal was bought right on top of MDD from 2017 through 2026, with exceptions of 2022 and 2023, which had 2-3 basis point spreads.
"Both indicate willingness to position ahead of a possible correction," the trader said. "The MTA deal was marginally adjusted after the retail order period and the Texas Trans deal was bumped and tightened between five and seven basis points, both good indicators."
Wells Fargo and Morgan Stanley priced and repriced the State of Connecticut's $650 million of general obligation bonds and green bonds for institutions on Tuesday after a one day retail order period. The $585 million of GO bonds were repriced to yield from 0.95% with a 2% coupon in 2017 to 2.77% with a 5% coupon in 2029. The bonds were also repriced to yield from 3.28% with a 3% coupon in 2032 to 3.53% with a 3.375% coupon in 2036.
The $65 million of GO green bonds were repriced to yield from 3.10% with a 4% coupon and 2.85% with a 5% coupon in a split 2030 maturity to 2.92% with a 5% coupon in 2031. The deal is rated Aa3 by Moody's Investors Service and AA-minus by both S&P Global Ratings and Fitch Ratings.
"The Connecticut deal is a different story, but that is more related to credit and negative news, [as yields] had to be cut from original retail spreads yesterday," the trader said.
Since 2006, the state of Connecticut has sold roughly $31.2 billion of securities, with the highest issuance coming in 2008, when it sold $4.21 billion. During the same time period, the Constitution State has sold more than $2 billion in every year, except in 2006 and 2007.
Jefferies priced and then repriced the New York Metropolitan Transportation Authority's $642.555 million of revenue refunding bonds after a one day retail order period. The bonds were priced to yield from 0.85% with a 4% coupon in 2017 to 1.54% with a 5% coupon in 2022. The bonds were also priced to yield 1.89% with a 4% coupon in 2024 and to yield from 2.17% with a 5% coupon in 2026 to 3.258% with a 3.125% coupon in 2035. The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
Wells Fargo priced and then repriced the Texas Transportation Commission's $590.045 million of highway improvement GO bonds, which were repriced to yield from 0.88% with a 5% coupon in 2018 to 2.72% with a 5% coupon in 2040. A term bond in 2044 was priced to yield 2.76% with a 5% coupon and another term bond in 2046 was priced to yield 3.03% with a 4% coupon. The deal is rated triple-A by Moody's, S&P and Fitch.
Bank of America Merrill Lynch priced the University of Washington's $206.75 million of general revenue and refunding bonds. The $196.54 million of tax exempt, 2016A bonds were priced to yield from 0.75% with a 5% coupon in 2017 to 2.69% with a 5% coupon in 2036. A term bond in 2041 was priced to yield 3.11% with a 4% coupon and another term bond in 2046 was priced to yield 2.81% with a 5.25% coupon.
The $10.21 million of taxable, 2016B bonds were priced to yield from 1.00% with a 5% coupon in 2017 to priced at par to yield 3.15% in 2031. A term bond in 2036 was priced at par to yield 3.40%. The deal is rated Aaa by Moody's and AA-plus by S&P.
Morgan Stanley priced the State Board of Regents of Utah University's $131.1 million of general revenue and refundings bonds. The $128.02 million of Series 2016B-1 bonds were priced to yield from 0.89% with a 2% coupon in 2017 to 2.69% with a 5% coupon in 2036.
The $3.08 million of Series 2016B-2 bonds were priced to yield from 0.97% with a 4% coupon in 2018 to 1.28% with a 4% coupon in 2021. The deal is rated Aa1 by Moody's and AA-plus by S&P.
Morgan Stanley priced the Nebraska Public Power District's $113.28 million of general revenue bonds. The $70.855 million of series C bonds were priced to yield from 0.91% with a 3% coupon in 2018 to 2.94% with a 5% coupon in 2036.
The $42.425 million of Series D bonds were priced to yield from 0.91% with a 2% coupon in 2018 to 2.94% with a 5% coupon in 2036. A term bond in 2041 was priced to yield 3.06% with a 5% coupon and another term bond in 2046 was priced to yield 3.11% with a 5% coupon. The deal is rated A1 by Moody's and A-plus by S&P and Fitch.
In the competitive arena California, which has sold the most out of all issuers with $7.27 billion as of the end of the third quarter this year, will be adding to that total with three separate sales on Tuesday that will total $1.65 billion of various purpose GO and GO refunding bonds.
The largest sale of $815.005 million was won by Citi with a true interest cost of 1.57%. The bonds were priced to yield from 0.72% with a 4% coupon in 2017 to 1.93% with a 5% coupon in 2026.
The $575.755 million more of tax exempts were won by Morgan Stanley with a TIC of 2.87%. The bonds were priced to yield from 2.07% with a 5% coupon in 2027 to 2.40% with a 5% coupon in 2030. A term bond in 2033 was priced to yield 2.59% with a 5% coupon.
The $255 million of taxable were won by Jefferies with a TIC of 0.89%. The bonds were priced to yield from 0.80% with a 0.85% coupon in 2017 to 0.90% with a 1.05% coupon in 2018. All three deals are rated Aa3 by Moody's, AA-minus by S&P and Fitch Ratings.
Wake County N.C., sold $162.215 million of GO refunding bonds, which were won by Wells with a TIC of 1.38%. The bonds were priced to yield from 0.73% with a 5% coupon in 2017 to 1.00% with a 5% coupon in 2020. The bonds were also priced to yield from 1.20% with a 5% coupon in 2022 to 1.67% with a 5% coupon in 2026. The deal is rated triple-A by Moody's, S&P and Fitch.
The Suffolk County Water Authority sold two separate sales totaling $174.775 million of water system revenue bonds. The bigger sale for $118.335 million was won by Wells Fargo with a TIC of 3.41%. The $56.44 million was won by BAML with a TIC of 2.72%. The deals are rated triple-A by both S&P and Fitch.
"The muni primary calendar still seemed to hinder secondary trading causing the MMD curve to remain unchanged. Negotiated deals still offered impressive concessions while competitive deals saw firm bids," said Randy Smolik, MMD's senior market analyst.
The yield on the 10-year benchmark muni general obligation was steady at 1.73% from Monday, while the yield on the 30-year was unchanged at 2.56%, according to a final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were slightly stronger at the close on Tuesday. The yield on the two-year Treasury fell to 0.80% from 0.81% on Monday, the 10-year Treasury yield was lower to 1.75% from 1.76% and the yield on the 30-year Treasury bond decreased to 2.51% from 2.52%.
On Tuesday, the 10-year muni to Treasury ratio was calculated at 99.1% compared to 89.3% on Monday, while the 30-year muni to Treasury ratio stood at 102.0% versus 91.2%, according to MMD.
"Muni/treasury ratios keep moving higher, looking very enticing like AAA 10-year nearing 100%. But, buyer focus was on the primary and they can get attractive spreads in the negotiated sector," said Smolik.
Municipal CUSIP Requests Fell 2% in Sept.
Demand for new municipal CUSIP identifiers dropped 2% in September after showing monthly increases throughout most of the second and third quarters of 2016, CUSIP Global Services said in a report released on Tuesday.
A total of 1,277 new municipal bond identifier requests were made last month, still enough to keep year-over-year municipal issuance growth levels positive at 6.2% growth over the same period in 2015.
The report tracks requests by issuers for bond identifiers as an early indicator of new volume and suggests a resurgence of municipal issuance in the next several weeks.
"A combination of favorable market conditions and seasonal, quarter-end activity have conspired to keep overall CUSIP request volume at a relatively high level through the end of September," said Gerard Faulkner, director of operations for CUSIP Global Services. "Based on the data we've seen for the first three quarters of 2016, we expect to see a sustained pace of new security issuance through the next several months."
Richard Peterson, senior director at S&P Global Market Intelligence, said that the story behind the surge in new debt issuance is the Federal Reserve's decision to keep rates low.
"As long as corporate and municipal issuers can take advantage of these historically low interest rates, we expect the trend of strong new debt issuance volume to continue in force," he said.