Colossal competitive deals dominate day
Municipal market participants were busy on Tuesday, as roughly half of the week’s issuance is flowed into the primary market. Top-shelf municipal bonds were stronger, according to traders, as yields dropped as many as five basis points in some maturities.
California came to market with $1.59 billion of various purpose general obligation bonds in three competitive sales on Tuesday.
The $557.22 million of tax-exempt Bid Group B bonds were won by Wells Fargo with a true interest cost of 1.79%. The $493.215 million of various purpose general refunding bonds were priced to yield from 0.88% with a 5% coupon in 2018 to 1.17% with a 5% coupon in 2021 and from 1.48% with a 5% coupon in a 2023 to 2.07% with a 5% coupon in 2027. The $64 million of VP GO construction bonds were priced to yield from 1.48% with a 5% coupon in 2023 to 1.66% with a 5% coupon in 2024.
This came one day after California State Treasurer John Chiang said the state will continue the suspension of Wells Fargo as a managing underwriter on bond deals.
Chiang’s move will extend into a second year California’s financial sanctions against Wells Fargo, which stem from revelations that bank employees secretly created accounts without clients' approval.
“I think Wells really paid to try to get back in Cal’s good graces,” said one Midwest trader.
The $522.53 million of tax-exempt Bid Group C bonds were won by Morgan Stanley with a TIC of 3.11%. The $387.875 million of VP GO refunding bonds were priced to yield from 2.17% with a 5% coupon in 2028 to 2.31% with a 5% coupon in 2030 and from 2.50% with a 5% coupon in 2033 to 2.92% with a 4% coupon in 2037. The $134.655 million of VP GO construction bonds were priced to yield from 2.17% with a 5% coupon in 2028 to 2.24% with a 5% coupon in 2029 and from 2.37% with a 5% coupon in 2031 to 2.44% with a 5% coupon in 2032.
The $508.705 million of Bid Group A taxable GO bonds were won by JP Morgan with a TIC of 2.16%. The bonds were priced to yield from 1.65% with a 2.25% coupon in 2019 to 1.82% with a 2.30% coupon in 2020 and from 2.20% with a 2.50% coupon in 2022 to priced at par with a 2.25% coupon in 2023.
The 2019 maturity was about 10 basis points above the comparable Treasury, the 2020 maturity was about 13 basis points above the comparable Treasury, the 2022 maturity was about 23 basis points above the comparable Treasury and the 2023 maturity was about 28 basis points above the comparable Treasury. The deals are rated Aa3 by Moody’s Investors Service, and AA-minus by S&P Global Ratings and Fitch Ratings.
Illinois competitively sold $1.5 billion of GOs in three separate issues.
The $500 million Series of November 2017A GOs, were won by Bank of America Merrill Lynch with a TIC of 1.64%. The bonds were priced to yield 1.64% with a 5% coupon in a bullet 2018 maturity.
The $500 million of Series of November 2017B GOs were won by JP Morgan, with a TIC of 1.75%. The bonds were priced to yield 1.70% with a 5% coupon in a bullet 2019 maturity.
The $500 million of Series of November 2017C GOs were won by BAML with a TIC of 3.95% and priced to yield 3.78% with a 5% coupon in a bullet 2029 maturity. The deals are rated Baa3 by Moody’s, BBB-minus by S&P and BBB by Fitch.
“The Chicago deals were very well received by investors, which surprised us a bit,” said Robert Wimmel, head of the municipal fixed income team at BMO. “The yields of all three competitive deals were better than recent activity in the State’s GO debt.”
He said that the 2020 maturity was put away to customers at a spread between 15 and 20 basis points tighter than recent trades.
“With many more bonds coming negotiated next week, this is a good sign for Illinois taxpayers," Wimmel said. "As investors, we were hoping to get more yield with wider spreads. We are looking to buy more Illinois GOs, but will wait for the negotiated deals next week.”
With this week's sales, since 2013, the Golden State has issued $37.6 billion while the Prairie State has issued $10.64 billion of securities. California saw a low year of issuance in 2014 when it sold $6.24 billion and saw a high in 2016 with $8.92 billion, while Illinois did not come to market in 2015 and saw its high the next year, when it sold $3.36 billion.
The Virginia Public School Authority sold $115.82 million of financing 1997 resolution Series 2017C school financing bonds on Tuesday. Bank of America Merrill Lynch won the bidding with a TIC of 2.99%. The bonds were priced to yield from 0.98% with a 2% coupon in 2018 to 3.40% with a 3.25% coupon in 2043. A term bond in 2047 was priced to yield 3.476% with a 3.375% coupon. The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
In the negotiated sector on Tuesday, Goldman Sachs held a second day of retail orders on the New York City Transitional Finance Authority’s $850 million of Fiscal 2018 Series B Subseries B-1 future tax secured subordinate bonds.
On Tuesday, the bonds were priced for retail at par to yield from 3.00% and 5.00% in a split 2019 maturity to 3.403% with a 3.375% coupon in 2045. No retail orders were taken in the 2031-2033, 2036, 2038-2041, or 2043 maturities.
The first day of retail orders on Monday was priced to yield from 1.01% with 3% and 5% coupons in a split 2019 maturity to approximately 3.40% in 2045. No retail orders were taken in the 2031-2033, 2036, 2038-2041, or 2043 maturities.
On Wednesday, the deal will price for institutions. The TFA will also competitively sell $140 million of taxable Fiscal 2018 Series B Subseries B-2 future tax secured subordinate bonds. The deals are rated Aa1 by Moody’s and AAA by S&P and Fitch.
The yield on the 10-year benchmark muni general obligation was three basis points lower to 1.93% from 1.96% from Monday, while the 30-year GO yield was five basis points lower to 2.67% from 2.72%, according to a final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were mostly unchanged on Tuesday. The yield on the two-year Treasury inched up to 1.55% from 1.54% from 1.55%, the 10-year Treasury yield was flat at 2.30% and yield on the 30-year Treasury bond was steady at 2.81%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 84.1% compared with 84.8% on Monday, while the 30-year muni-to-Treasury ratio stood at 96.3% versus 96.5%, according to MMD.
AP-MBIS 10-year muni dips to 2.281%
The Associated Press-MBIS 10-year municipal benchmark 5% general obligation was at 2.281% on Tuesday at the market close, little changed from the final read of 2.284% on Monday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers.
The AP-MBIS index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.
Data appearing in this article from Municipal Bond Information Services, including the AP-MBIS municipal bond index, is available on the Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8372 for more information.