California competitively sold nearly $900 million of bonds while Salt Lake City’s $859 million airport deal was priced in the negotiated sector as a another wave volume hit the municipal market on Wednesday.
Primary market
In the competitive arena, California sold $866 million of general obligation bonds consisting of $445 million of Bid Group A various purpose GOs and $421.02 million of Bid Group B various purpose GOs.
Morgan Stanley won the Bid Group A GOs with a true interest cost of 3.6994% while Bank of America Merrill Lynch won the Bid Group B GOs with a TIC of 2.8478%.
Proceeds will be used to finance certain capital improvements and to refund GO commercial paper notes.
The financial advisor is Public Resources Advisory Group; the bond counsel is Orrick Herrington.
The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
Since 2008, the Golden State has sold about $97 billion of bonds, with the most issuance occurring in 2009 when is issued around $23 billion. It sold the least in 2011, when it issued roughly $4.9 billion.
The South Broward Hospital District, Fla., sold $100 million of Series 2018 hospital revenue bonds.
BAML won the bonds with a TIC of 4.2646%. The financial advisor is Ponder & Co.; the bond counsel is Greenberg Traurig.
Proceeds will be used for the cost of acquiring, constructing and equipping certain of the district’s healthcare facilities.
The deal is rated Aa3 by Moody’s and AA by S&P.
In the negotiated sector, Goldman Sachs priced Salt Lake City’s $858.82 million of Series 2018A airport revenue bonds subject to the alternative minimum tax and Series 2018B non-AMT airport revenue bonds for the Salt Lake City International Airport. The deal is rated A2 by Moody’s, A-plus by S&P and AA-minus by Kroll Bond Rating Agency.
JPMorgan Securities priced the Oklahoma Turnpike Authority’s $328.58 million of Series 2018A second senior revenue bonds. The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
RBC Capital Markets priced the New Jersey Economic Development Authority’s $300 million of Series 2017B state lease revenue bonds for the State House project as a remarketing. The deal is rated Baa1 by Moody’s, BBB-plus by S&P and A-minus by Fitch except for the 2039 maturity which is insured by Build America Mutual and rated AA by S&P.
Morgan Stanley priced Sacramento, Calif.’s $261.57 million of Series 2018 transient occupancy tax revenue bonds consisting of Senior Series A TOT bonds and Subordinate Series C TOT bonds. The senior series bonds are rated A1 by Moody’s while the subordinate bonds are rated A2 by Moody’s
Wells Fargo Securities priced and repriced the Cypress-Fairbanks Independent School District, Texas’ $187.33 million of Series 2018 unlimited tax school building bonds. The deal, which is backed by the Permanent School Fund guarantee program, is rated triple-A by Moody’s and S&P.
Bank of America price the Illinois Finance Authority’s $170.595 million of Series 2018A and Series 2018B revenue refunding bonds for Edward-Elmhurst Healthcare. The deal is rated A by S&P and Fitch.
Wednesday’s bond sales
California
Utah
Oklahoma
New Jersey
Texas
Florida
Illinois
Bond Buyer 30-day visible supply at $11.67B
The Bond Buyer's 30-day visible supply calendar decreased $1.60 billion to $11.67 billion for Wednesday. The total is comprised of $3.57 billion of competitive sales and $8.10 billion of negotiated deals.
Muni opportunities seen
While the recent Treasury weakness has crimped daily municipal demand among some investors -- it has also helped create opportunities for other investors, according to two New York sources.
A New York trader observed modest demand for long kicker bonds with 3% and 4% coupons amid otherwise light trading activity in the secondary market on Wednesday. He was quick to point out that due to the year-long volume shortage, overall demand is still strong -- and is evident among supply-starved investors chasing new issues in the primary market.
However, he said some of the day to day transactional demand for municipals is curtailed by the Treasury weakness and backup in municipal yields in the last two weeks. “It’s a little softer,” as there are slightly more sellers than buyers given the recent swift drop in municipal prices, he said on Wednesday.
Meanwhile, last week’s municipal sell-off created more attractive entry points for institutional investors as ratios across the curve improved dramatically after last week’s underperformance, Peter Block, managing director of credit strategy at Ramirez & Co. pointed out in an Oct. 16 report.
“Mutual fund outflows and rich valuations caused municipals to sell off throughout the week in contrast with Treasuries, which rallied on risk-down sentiment reflecting lower-than-expected September CPI reading and strong auctions for over $200 billion of UST supply,” he said.
Bid-wanted lists, according to Block, were 55% above average with three $1 billion-plus days.
“Dealers also continue to hold a fair amount of unsold new issue balances and inventory -- 21% above average compared to 40% last week -- and a balance sheet clean up before year-end could also pressure the market,” he predicted. “We have started to see a fair amount of selling for tax swaps as investors have begun to sell off bonds to offset capital gains in the equity market and to reposition themselves for higher rates,” Block added.
Given the negative forecast for rates and projected lower total returns across fixed-income generally, Ramirez recommends a defensive, shorter duration posture with five- to seven-years of effective duration, focusing on 5%-plus coupons with intermediate maturities between 10- and 15-years with shorter calls of five- to eight-years. “This structure captures about 90% of the MMD yield curve, has optimal roll down -- 50 basis points -- and is generally cheaper versus shorter two to four year call structures,” he wrote.
“We also think it makes sense to pare back credit risk and improve portfolio credit quality into AA or better general market names as higher quality should outperform as rates rise and spreads widen, particularly on lower coupon structures,” Block added.
Secondary market
Municipal bonds were stronger on Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 30-year maturities.
High-grade munis were also stronger, with yields calculated on MBIS' AAA scale declining as much as three basis points across the curve.
Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on 30-year muni maturity falling one basis point.
Treasury bonds were weaker as stocks traded lower.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 85.5% while the 30-year muni-to-Treasury ratio stood at 101.2%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Previous session's activity
The Municipal Securities Rulemaking Board reported 44,985 trades on Tuesday on volume of $12.70 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 15.856% of the market, the Empire State taking 14.343% and the Lone Star State taking 10.081%.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
