DASNY's $1.8B sales price into market starved for municipal bond supply

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Municipal bonds were stronger at mid-session as a swell of supply swept into the market on Wednesday.

Primary market
The Dormitory Authority of New York sold $1.79 billion of state sales tax bonds in five deals. Strong demand for the bonds exhibited the pent-up appetite for new paper amid a supply starved market, according to a New York trader.

Morgan Stanley won the $492.385 million of Series 2018C Bidding Group 4 bonds with a true interest cost of 3.8105%.

Bank of America Merrill Lynch won the $447.285 million of Series 2018C Bidding Group 3 bonds with a TIC of 3.3244%. BAML also won the $406.81 million of Series 2018C Bidding Group 2 bonds with a TIC of 2.3391%.

JPMorgan Securities won the $372.36 million of Series 2018C Bidding Group 1 bonds with a TIC of 1.7955%. And Morgan Stanley won the $73.97 million of Series 2018D taxable bonds with a TIC of 3.0494%.

The deals are rated AAA by S&P Global Ratings and AA-plus by Fitch Ratings. The financial advisors are Public Resources Advisory Group and Rockfleet Financial Services; bond counsel are Hawkins Delafield and Holley James.

“It was a riot on these things,” the trader said, noting that he observed nine firms bidding on the competitive offerings.

“There was very strong bidding — all the big guys were all over this thing trying to get it,” he added. “Everyone is looking to buy new issues — all the demand is primary driven. On the new issues there’s definitely a food fight.”

The DASNY deal in particular was appetizing for investors due to its reputation as a strong credit, according to the trader. “It’s a great name, triple-A and double-A plus, great quality, and a great name that’s different — it doesn’t come very often,” the trader said, explaining these were sales tax bonds, compared to DASNY’s more frequent personal income tax credit.

Overall, he said municipals showed some evidence of getting “a little rich to Treasuries” because of the week’s supply flurry amid the July reinvestment demand. In addition, he said the headlines regarding the tariff wars may be hurting the stock market, but bonds remained strong Wednesday.

Most of the demand he has observed lately is 10 years and under. “People are still concerned and still want shorter paper,” he said. “Institutional investors have tons of money and a lot of bonds maturing,” he added, noting demand for New York paper should ramp up even more, with a large amount of calls by the Port Authority of New York & New Jersey slated for July 15.

“There’s lots of money but not a lot of bonds,” he added.

Also on Wednesday, the Metropolitan Atlanta Rapid Transit Authority competitively sold $165.875 million of Series 2018A sales tax revenue bonds.

Citigroup won the bonds with a TIC of 2.1428%. Financial advisors are Hilltop Securities, First Tryon Advisors and TKG & Associates; the bond counsel is Holland & Knight.

In the negotiated sector, Morgan Stanley priced the Trustees of the California State University’s $495.35 million of Series 2018A systemwide revenue bonds for retail investors ahead of the institutional pricing on Thursday.

The deal is rated Aa2 by Moody’s and AA-minus by S&P.

Piper Jaffray priced Texas’ $239.16 million of Series 2018B general obligation water financial assistance refunding bonds, Water Infrastructure Fund, Subseries 2018B-1, 2018B-2, and 2018B-3. The deal is rated triple-A by Moody’s, S&P and Fitch.

Since 2008, Texas hold sold nearly $3.5 billion of bonds, with the most issuance occurring in 2013 when it sold $640.6 million of bonds. The state did not come to market in 2016.

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Wednesday’s sales

New York:
Click here for the DASNY $447.285M sale

Click here for the DASNY $406.81M sale

California:
Click here for the State University retail pricing

Texas:
Click here for the state pricing

Bond Buyer 30-day visible supply at $11.93B
The Bond Buyer's 30-day visible supply calendar increased $851.5 million to $11.93 billion on Wednesday. The total is comprised of $4.68 billion of competitive sales and $7.25 billion of negotiated deals.

Secondary market
Municipal bonds were stronger on Wednesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points in the one- to 30-year maturities.

High-grade munis were also stronger, with yields calculated on MBIS’ AAA scale falling as much as two basis points across the curve.

Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed the 10-year muni general obligation yield falling as much as one basis point and the 30-year muni maturity yield remaining unchanged.

Treasury bonds were stronger as stocks traded lower.

On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 84.8% while the 30-year muni-to-Treasury ratio stood at 98.2%, 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 42,324 trades on Tuesday on volume of $10.34 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 17.763% of the market, the Empire State taking 12.485% and the Lone Star State taking 9.105%.

Data appearing in this article from Municipal Bond Information Services, including the 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 212-803-8474 for more information.

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Primary bond market Secondary bond market New York State Dormitory Authority State of New York State of Texas State of California
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