The tax-exempt portion of Chicago's $1.09 billion general obligation bond deals was priced Thursday morning after the taxable part came to market late Wednesday.
Municipal bond traders were awaiting the last of the week's big new issue supply, with attention also focused on the state of Maryland's competitive sale and the Louisiana Citizens Property Insurance Corp. offering.
Primary Market
On Thursday, Morgan Stanley priced Chicago's $347 million of Series 2015A tax-exempt GOs. The bonds were priced to yield from 3.94% with a 5% coupon in 2019 to 5.09% with a 5% coupon in 2024; from 5.31% with a 5% coupon in 2026 to 5.53% with a 5.375% coupon in 2029; from 5.64% with a 5.50% coupon in 2031 to 5.72% with a 5.50% coupon in 2035; and a 2039 term was priced as 5 1/2s to yield 5.77%.
Late Wednesday, Morgan Stanley priced the city's $742.86 million of Series 2015B taxable general obligation bonds.
The taxables were priced at par to yield 5.383% in 2019, or 375 basis points above the comparable Treasury; 5.633% in 2020, 400 basis points above the comparable Treasury; 5.962% in 2021, 390 basis points above the comparable Treasury; 6.212% in 2022, 415 basis points above the comparable Treasury; and 6.361% in 2023, 400 basis points above the comparable Treasury. A 2033 term bond was priced as 7 3/8s to yield 7.45% and a 2042 term was priced as 7 3/4s to yield 7.98%. The terms were priced with the average life of 15.422 years for the 2033 and 20.787 years for the 2042.
"I think the spreads on the taxable look attractive. They're very comparable to high-yield corporate names in the low-BB/high-B range," said Triet Nguyen, co-head of municipals and corporate credit at New Oak. "Of course, from the city's standpoint, that's a significant yield penalty."
The deal's taxable piece was so large due to the city's plan to use proceeds to cover short-term operating expenses that would run afoul of long-term tax-exempt financing rules under the Internal Revenue Service code.
The offering is rated BBB-plus by Standard & Poor's and Fitch Ratings and A-minus by Kroll Bond Rating Agency.
In the competitive arena on Thursday, Maryland is set to sell $500 million of GOs in two separate sales: one $450 million of tax-exempts and the other $50 million of taxables.
The proceeds of the tax-exempts will be used to finance capital projects such as educational facilities and hospitals. The taxable bond proceeds will mainly be used to support housing, community development and water-quality financing programs.
Moody's Investors Service, S&P and Fitch affirmed Maryland's triple-A rating ahead of the sale. Maryland typically has competitive GO bond sales twice a year. The Treasurer's office said it expects to have another sale in February or March.
Morgan Stanley is also set to price the Louisiana Citizens Property Insurance Corp.'s $339.44 million of Series 2015 assessment revenue bonds. The issue is partially insured by Assured Guaranty and carries ratings of A2 by Moody's, AA by S&P and AA-plus by Fitch.
Secondary Market
Treasury prices were lower on Thursday, with the yield on the two-year Treasury note rising to 0.67% from 0.63% on Wednesday, while the 10-year yield rose to 2.39% from 2.35% and the 30-year yield increased to 3.16% from 3.13%.
Prices of top-quality municipal bonds finished stronger on Wednesday. The yield on the 10-year benchmark muni general obligation fell one basis point to 2.32% from 2.33% on Tuesday, while the yield on the 30-year GO dropped three basis points to 3.28% from 3.31%, according to the final read of Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Wednesday at 100.0% versus 95.6% on Monday, while the 30-year muni to Treasury ratio stood at 107.1% compared to 102.9%, according to MMD.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $743.4 million, bringing total net assets to $246.48 billion in the period ended July 13, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $5.15 billion to $247.22 billion in the previous week.
The average, seven-day simple yield for the 389 weekly reporting tax-exempt funds remained at 0.01% for a 115th straight week.
The total net assets of the 988 weekly reporting taxable money funds fell $3.93 billion to $2.399 trillion in the period ended July 14, after experiencing an inflow of $8.06 billion to $2.403 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 26th consecutive week.
Overall, the combined total net assets of the 1,377 weekly reporting money funds decreased $4.67 billion to $2.645 trillion in the period ended July 14, which followed an inflow of $13.57 billion to $2.650 trillion the week before.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 39,879 trades on Wednesday on volume of $9.608 billion.
The most active bond, based on the number of trades, was the Lehigh County General Purpose Authority, Pa., Series 2015A hospital revenue 4 1/4s of 2045, which traded 251 times at an average price of 98.813, an average yield of 4.315%. The bonds were initially priced at 97.352 to yield 4.41%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $2.39 billion to $9.99 billion on Thursday. The total is comprised of $2.67 billion competitive sales and $7.32 billion of negotiated deals.
Yvette Shields contributed to this report.
