Action in the municipal bond market focused on the competitive arena on Thursday as billions of dollars of deals hit the screens. The Dormitory Authority of the State of New York led the way in a rare competitive sale, offering almost $2.5 billion of personal income tax receipt bonds.
Municipals traded little changed for most of the day, with yields remaining steady across most of the AAA scales.
Investors reversed course after last week and put cash back into tax-exempt mutual funds, with Refinitiv Lipper reporting muni bonds saw about almost $2 billion of inflows in the latest reporting week.
Primary Market
The Dormitory Authority of the State of New York (Aa2/NR/AA+/NR) competitively sold almost $2.5 billion of state personal income tax general purpose revenue bonds in six offerings.
The winners included:
- BofA Securities won the $556.64 million of Series 2020A Bidding Group 1 tax-exempt PITs with a true interest cost of 0.991%. The bonds were priced as 5s to yield from 0.20% in 2021 to 1.42% in 2030.
- Morgan Stanley won the $512.07 million of Series 2020A Bidding Group 2 tax-exempt PITs with a TIC of 2.4543%. The bonds were priced to yield from 1.57% with a 5% coupon in 2031 to 2.21% with a 4% coupon in 2037.
- JPMorgan Securities won the $493.6 million of Series 2020A Bidding Group 5 tax-exempt PITs with a TIC of 3.1252%.
- JPMorgan won the $456.21 million of Series 2020A Bidding Group 3 tax-exempt PITs with a TIC of 2.7527%.
- Citigroup won the $423.01 million of Series 2020A Bidding Group 4 tax-exempt PITs with a TIC of 3.2293%. The bonds were priced as 4s to yield 2.50% in 2044, 2.53% in 2045 and 2.54% in 2046.
- Citi won the $49.295 million of Series 2020B taxable PITs with a TIC of 1.0965%. The bonds were priced at par to yield from 0.45% in 2021 to 1.87% in 2030.
Proceeds will be used for financing or reimbursing the costs of certain programs and projects and refund various state-supported debt. Public Resources Advisory Group and Backstrom McCarley Berry were the financial advisors. Nixon Peabody and Bryant Rabbino were the bond counsel.
North Carolina competitively sold $400 million of public improvement GOs for the Connect NC program. Citigroup won the bonds with a TIC of 1.4681%. The bonds were priced to yield from 0.14% with a 5% coupon in 2021 to 1.99% with a 1.875% coupon in 2040. Davenport & Co. and the Local Government Commission in Raleigh are the financial advisors. Womble Bond is the bond counsel.
Miami-Dade County, Fla., competitively sold $181.515 million of double-barreled aviation refunding GOs. JPMorgan won the bonds with a TIC of 2.0859%. HilltopSecurities was the financial advisor; Greenberg Traurig and Edwards & Feanny were the bond counsel.
Arlington County, Va., (Aaa/AAA/AAA/NR) sold $183.92 million of Series 2020A tax-exempt public improvement and refunding GOs. BofA won the deal with a TIC of 1.8041%. The bonds were priced to yield from 0.14% with a 5% coupon in 2021 to 1.72% with a 4% coupon in 2040.
PFM Financial Advisors was the financial advisor; McGuireWoods was the bond counsel. Proceeds will be used for various public improvements in the County and to refunding certain bonds.
BofA priced Oregon State University’s (Aa3U/AA/NR/NR) $304.025 million of taxable general revenue bonds. The bonds were priced at par to yield 3.424% in a 2060 bullet maturity with an average life of 36.12 years with a sinking fund that starts in 2053.
The deal, which carries an underlying rating of Aa3 from Moody’s Investors Service, was insured by Build America Mutual and highlights a recent trend of bond insurance being used on larger and higher-rated issues.
Because of the deal’s size and structure, a source said the bonds could be eligible to be included in the aggregate taxable-bond indexes. This would be relatively rare for a muni deal and could lead to additional liquidity and broader investor interest.
Morgan Stanley priced the New York State Housing Finance Agency’s (Aa2/NR/NR/NR) $178.07 million of affordable housing revenue bonds consisting of Series 2020J climate bond certified/sustainability bonds and Series 2020K sustainability bonds.
The $138.46 million of Series 2020J bonds were priced at par to yield from 0.30% in 2022 to 2% in 2032, 2.20% in 2035, 2.50% in 2040, 2.65% in 2045, 2.70% in 2050 and 2.75% in 2053. The $39.61 million of 2020K bonds were priced at par to yield from 0.30% in 2022 to 2% in 2032, 2.20% in 2035, 2.50% in 2040, 2.65% in 2045, 2.70% in 2050 and 2.75% in 2053.
JPMorgan priced Macomb County, Mich.’s (Aa1/NR/NR/NR) $130.93 million of Series 2020 taxable GO limited tax refunding bonds. The bonds were priced at par to yield from 0.249% in 2021 to 2.239% in 2035.
Citi received the written award on the University of Massachusetts Building Authority’s (Aa2/AA-/AA/NR) $329.93 million of Senior Series 2020-4 taxable refunding revenue bonds.
RBC Capital Markets received the official award on the Mansfield Independent School District, Texas’ (Aaa/NR/AAA/NR) $399.485 million of taxable unlimited tax refunding bonds. The bonds were Permanent School Fund Guarantee Program insured.
The heavy new issuance in the market is bringing with it a welcome balance, where some concession is being built into levels, says Kim Olsan, senior vice president at FHN Financial.
“Generic yields gave back two to four basis points, based on marquee names moving wider,” she said. “A multi-revenue supported competitive sale of Maryland Department of Transportation bonds [on Wednesday] drew spreads in the 2035 maturity of +28/AAA as 5s. By comparison, an early September issue in Oregon DOTs sold the same maturity as 5s at +21/AAA.”
She said that whether driven by the transportation component or not, any specialty state, high-grade name that offers concessions will be given due consideration.
“While most of the flow has been in the primary market, secondary yield corrections can be expected up and down in credit as supply is digested through the month and with a greater weighting in tax-exempt volume more heavily influencing overall spreads,” she said.
Olsan said that it remains to be seen if the coupon stack will be affected in any large way in longer maturities and will be dependent on the mix of structures in the upcoming new issues.
She added that a sale of $850 million Illinois GOs has been placed onto the competitive slate for later this month. S&P Global Ratings and Fitch Ratings have affirmed their BBB- ratings and negative outlooks on the state.
PRASA may sell bonds by year end
On Thursday, the Puerto Rico Aqueduct and Sewer Authority said it might be refinancing its bond debt with a new bond by the end of the year.
PRASA made the announcement to the MSRB's Electronic Municipal Marketplace Access web site.
The new senior lien bonds would take out about $4.4 billion in senior and subordinate lien bonds. While over the last few years there have been closed-door discussions about restructuring the terms of existing PRASA bonds, this hasn’t taken place. However, the authority has renegotiated the terms of federal government debt.
PRASA said Barclays Capital would handle the refinancing.
Informa: Money market muni funds up $42M
Tax-exempt municipal money market fund assets rose $42.1 million, bringing total net assets to $114.27 billion in the week ended Oct. 5, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 184 tax-free and municipal money-market funds remained at 0.02% from the previous week.
Taxable money-fund assets dropped $42.38 billion in the week ended Oct. 6, bringing total net assets to $4.202 trillion.
The average, seven-day simple yield for the 775 taxable reporting funds fell to 0.01% from 0.02% in the prior week.
Overall, the combined total net assets of the 960 reporting money funds fell $42.33 billion in the week ended Oct. 6.
Refinitiv Lipper reports $1.7B inflow
In the week ended Oct. 7, weekly reporting tax-exempt mutual funds saw $1.729 billion of inflows. It followed a loss of $774.747 million in the previous week, the first decline in 20 weeks.
Exchange-traded muni funds reported inflows of $220.101 million, after outflows of $113.764 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.509 billion after outflows of $660.983 million in the prior week.
The four-week moving average remained positive at $516.182 million, after being in the green at $335.309 billion in the previous week.
Long-term muni bond funds had inflows of $839.739 million in the latest week after outflows of $940.623 million in the previous week. Intermediate-term funds had inflows of $61.026 million after outflows of $237.022 million in the prior week.
National funds had outflows of $1.661 billion after outflows of $667.853 million while high-yield muni funds reported inflows of $349.441 million in the latest week, after outflows of $56.759 million the previous week.
Secondary market
High-grade municipals were mostly unchanged on Thursday, according to final readings on Refinitiv MMD’s AAA benchmark scale.
Yields in 2021 and 2022 were unchanged at 0.14% and 0.15%, respectively. The yield on the 10-year muni was steady at 0.95% while the 30-year yield was flat at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 124.2% while the 30-year muni-to-Treasury ratio stood at 110.5%, according to MMD
The ICE AAA municipal yield curve showed short maturities unchanged, with the 2021 maturity at 0.13% and the 2022 maturity at 0.15%. The 10-year maturity was unchanged at 0.91% and the 30-year remained at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 123% while the 30-year muni-to-Treasury ratio stood at 109%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields at 0.15% in 2021 and 0.16% in 2022 while the 10-year muni remained at 0.95% and the 30-year was unchanged at 1.71%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.11%, the 2022 maturity unchanged at 0.13%, the 10-year flat at 0.91% and the 30-year steady at 1.71%.
Treasuries were stronger as stock prices traded higher.
The three-month Treasury note was yielding 0.09%, the 10-year Treasury was yielding 0.77% and the 30-year Treasury was yielding 1.57%.
The Dow rose 0.20%, the S&P 500 increased 0.60% and the Nasdaq gained 0.30%.
Robert Slavin contibuted to this report.
