Deal pricing fast and furious as market weakens ahead of tax legislation
The muni market weakened Wednesday as issuers flooded into the market to beat tax reform.
“Supply continues to weigh on tax-exempt bonds, as anxious issuers rush to take advantage of advance refunding savings prior to year-end,” said one New York trader. “As always, the market is readjusting due to heavy supply.”
The MBIS municipal non-callable 5% GO benchmark scale was weaker on trading through Wednesday’s market close.
The 10-year muni benchmark yield rose to 2.437% on Wednesday from the final read of 2.413% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield increased to 2.931% from 2.902% on Tuesday.
The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipals ended weaker Wednesday. The yield on the 10-year benchmark muni general obligation was five basis points higher to 2.21% from 2.16% on Tuesday, while the 30-year GO yield increased three basis points to 2.85% from 2.82%, according to a final read of Municipal Market Data’s triple-A scale.
U.S. Treasuries were mostly weaker Wednesday at the market close. The yield on the two-year Treasury nudged up to 1.76% from 1.75%, the 10-year Treasury yield rose to 2.37% from 2.34% and the yield on the 30-year Treasury jumped to 2.81% from 2.77%.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 93.1% compared with 92.4% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 101.2% versus 101.9%, according to MMD.
Illinois sold total of $750 million of general obligation bonds in two competitive sales on Wednesday: $655 million and $95 million.
Bank of America Merrill Lynch won both sales, the larger one with a true interest cost of 4.33%. The bonds were priced to yield from 2.25% with a 5% coupon in 2018 to 4.42% with a 5% coupon in 2042.
BAML also won the smaller offering with a TIC of 3.71%. Both transactions carry ratings of Baa3 from Moody’s Investors Service, BBB-minus from S&P Global Ratings and BBB from Fitch Ratings.
“We are very pleased with the strong response that the State received on today’s competitive bids,” said Scott Harry, director of the Governor’s Office of Management and Budget. “These transactions will allow the State to move forward with funding to address essential capital and infrastructure needs at an attractive interest rate.”
The proceeds from the bond sales will be used to fund major capital construction projects and finance information technology projects. The Governor’s Office of Management and Budget said that there were eight bids on the larger sale and 10 bids for the other and that the bond issue has an all-in borrowing cost for the combined series of 4.29%.
Since 2007, the Prairie State has issued over $35 billion of bonds, with the most issuance occurring in 2010 when it sold $8.68 billion of bonds. The state did not come to market in 2015. With Wednesday’s sales, this year becomes the second highest issuance total for the state in the past decade.
The only other notable competitive deal of the day came from the Washington Suburban Sanitary District, which sold $79.075 million of consolidated public improvement refunding bonds. The deal was won by Citi with a TIC of 2.16% and is rated triple-A by Moody’s, S&P and Fitch.
Washtubs, as the district is commonly called, was originally scheduled to sell roughly $190 million, and ended up downsizing the deal.
“It was a crossover refunding to prior issues, we ended up pulling some of it out, due to market conditions we wouldn’t have achieved the proper amount of savings if we had went through with it,” said Wye River Group, the financial advisor on the deal.
On the negotiated side, Barclays priced the Board of Regents of the University of Texas A&M University’s $342.64 million of revenue financing system bonds. The bonds were priced to yield from 1.27% with a 2% coupon in 2018 to 3.20% with a 4% coupon in 2037. A term bond in 2042 was priced to yield 2.97% with a 5% coupon, a term bond in 2047 was priced to yield 3.03% with a 5% coupon, a term bond in 2052 was priced to yield 3.53% with a 4% coupon and a term bond in 2057 was priced to yield 3.58% with a 4% coupon. The deal is rated triple-A by Moody’s, S&P and Fitch.
RBC priced the New York State Environmental Facilities Corp.’s $337.015 million of Series 2017E state clean water and drinking water revolving funds revenue bonds for New York City Municipal Water Finance Authority projects. The bonds were priced to yield from 1.19% with a 3% coupon in 2018 to 2.92% with a 5% coupon in 2038. A term bond in 2042 was priced to yield 2.97% with a 5% coupon and a term bond in 2047 was priced to yield 3.02% with a 5% coupon. The deal carries ratings of triple-A from Moody’s, S&P and Fitch.
JPMorgan priced Wisconsin Health and Educational Facilities Authority’s $301.77 million of revenue bonds for Children’s Hospital of Wisconsin. The bonds were priced to yield from 2.15% with a 5% coupon in 2023 to 3.77% with a 3.50% coupon in 2038. A term bond in 2042 was priced to yield 3.77% with a 4% coupon and a term bond in 2047 was priced to yield 3.82% with a 4% coupon. The deal is rated Aa3 by Moody’s and AA by S&P.
Raymond James priced the city of Miami Beach, Fla.’s $115.180 million of water and sewer revenue refunding bonds. The bonds were priced to yield from 1.37% with a 3% coupon in 2018 to 3.11% with a 5% coupon in 2037. A term bond in2042 was priced to yield 3.50% with a 4% coupon and a term bond in 2047 was priced to yield 3.24% with a 5% coupon. The deal is rated Aa3 by Moody’s and AA-minus by S&P.
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.