Demand lets NYC move up $1.2B GO sales
Overwhelming demand from buyers looking for Big Apple paper, combined with good timing and favorable market conditions, allowed New York City to move up its $1.2 billion offering by a day.
Ramirez & Co. priced New York City’s (Aa1/AA/AA) $937.94 million of tax-exempt general obligation bonds for institutions after holding a half-day retail order period on Tuesday.
A full day of retail orders was held on Monday for the Fiscal 2020 Series A Subseries A-1, Fiscal 2006 Series F Subseries F-4B, Fiscal 2006 Series H Subseries H-A and Fiscal 2008 Series J Subseries J-8. The city also moved up the sale of two competitive taxable issues that had been slated to sell on Wednesday.
"The NYC deal was accelerated in part due to solid retail demand through the two order periods and also to get out ahead of the crowd, with lots of deal scheduled for Wednesday and Thursday,” said a person familiar with the deal. “Institutional demand was not overwhelming out of the gate but it got done. Buyers definitely getting tighter with reads on new issues due to richer valuations.”
BofA Securities won NYC’s $338.875 million of Fiscal 2020 Series A Subseries A-2 taxable GOs with a true interest cost of 2.4988% while Morgan Stanley won the $261.125 million of Fiscal 2020 Series A Subseries A-3 taxable GOs with a TIC of 2.9412%.
Public Resources Advisory Group and PFM Financial Advisors were the financial advisors. Norton Rose and Bryant Rabbino were the bond counsel.
With timing, demand, and market conditions on its side, the city was able to complete its sales a day earlier than expected, a trader said.
“For them to accelerate they definitely had no trouble placing the bonds,” a New York trader said Tuesday afternoon, noting that retail orders amounted to roughly $175 million on Monday in the first day of the order period. "They must have gotten a great read on demand and levels and knew that retail was very strong after the first day and just banged it right out.”
With the strong reinvestment demand at the same time as a worse-than-average season supply slump, the trader said the city took advantage of the window of opportunity this week — especially with expectations of an upcoming light state calendar.
“There’s a lack of supply in New York and with demand being steady, there’s nothing coming in New York, so it came at the right time,” the trader added.
In addition, the availability of 5% coupon bonds appealed to many investors, he said. He expected the bonds to be more attractively priced when compared with the generic AA GO scale on Tuesday, which was steady at 1.11% to 2.26% between 2020 and 2049, respectively, according to Municipal Market Data.
Others said NYC GOs are typically devoured by investors for their quality, liquidity, and marketability — and this time was no different.
Howard Mackey, managing director at NW Financial in Hoboken, N.J., said although his firm was not involved in the NYC deal, the city’s GO paper typically commands a large audience of buyers — and has seen overwhelming demand in the current market.
“Over the past few months there’s been a tremendous amount of inflows of cash into muni bond funds and that’s been particularly true of specialty state issuers and New York and New Jersey are among them,” he said Tuesday afternoon.
Due to the strong demand, he has witnessed triple-A paper in New York priced five and 10 basis points through the generic triple-A MMD scale.
“It’s not surprising — depending on how the issue was priced — that there would be a tremendous amount of demand for the paper,” Mackey said.“It’s a strong double A credit and it affords a tremendous amount of liquidity in the market, so large funds will buy it,” he said.
Also Tuesday, the Florida Department of Transportation (Aaa/AAA/AAA) sold $184.5 million of unlimited tax GO right-of-way acquisition and bridge construction bonds. Wells Fargo Securities won the deal. Proceeds will be used to finance the cost of acquiring real property or rights for roads or to finance the cost of bridge construction. The state’s Division of Bond Finance acts as the financial advisor. Greenberg Traurig is the bond counsel.
JPMorgan Securities priced the California Health Facilities Financing Authority’s (A1/A+/NR) $334.905 million of Series 2019 revenue bonds for the City of Hope.
Citigroup priced Austin, Texas’ (A1/A/NR/AA-) $265.83 million of airport system revenue bonds consisting of Series 2019A and Series 2019B bonds subject to the alternative minimum tax.
Siebert Cisneros & Shank priced the San Antonio Independent School District, Texas’ (PSF:Aaa/NR/AAA) $296.325 million of Series 2019 unlimited tax school building and refunding bonds.
Loop Capital Markets priced the Fort Bend Independent School District, Texas’ (PSF:NR/AAA/AAA) $125.375 million of Series 2019C unlimited tax school building and refunding bonds.
Piper Jaffray priced the Vancouver School District No. 37, Clark County, Washington’s (Aa1/NR/NR) $152.985 million of Series 2019 unlimited tax general obligation bonds.
Tuesday’s bond sales
Munis were mixed in late trade on the MBIS benchmark scale, with yields rising less than one basis point in the 10-maturing and falling by one basis point in the 30-year maturity. High-grades were little changed, with MBIS’ AAA scale showing yields rising by less than one basis point in the 10- and 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GOs remained unchanged at 1.55% and 2.26%, respectively.
“The ICE muni yield curve is hovering around yesterday’s levels on light volume,” ICE Data Services said in a Tuesday market comment. “High-yield and tobacco bonds are quiet and unchanged. Taxable yields are one basis point higher in the 10-year maturities.”
ICE said and The Bond Buyer reported that reports of widespread protests in Puerto Rico amid calls for Gov. Ricardo Rossello to resign are leading to speculation there may be a strengthening of the Oversight Board’s impact. “The 2011 dated and pre-2011 dated GO bonds are down 1 1/8 points, while the 8% bellwether GO bonds are unchanged,” ICE said.
The 10-year muni-to-Treasury ratio was calculated at 74.9% while the 30-year muni-to-Treasury ratio stood at 86.9%, according to MMD.
Treasuries were weaker as stocks traded higher. The Treasury three-month was yielding 2.057%, the two-year was yielding 1.827%, the five-year was yielding 1.823%, the 10-year was yielding 2.074% and the 30-year was yielding 2.607%.
Trading in a tight range ahead of Fed
Ahead of the FOMC policy meeting, tax-exempt bond prices have been trading within a very tight range, Jefferey Lipton, managing director and head of municipal research and strategy at Oppenheimer & Co. expects to see similar activity up until July 31, when a rate decision is announced.
"Although an end to the summer technicals could give rise to a weaker supply/demand dynamic, we believe that continued retail interest will drive performance through Q3 and into the fourth quarter of 2019," Lipton said.
He also said that beyond August, reinvestment needs are expected to taper, yet he is not anticipating breakout issuance to the extent where fund flows would yield to a negative bias, although he said they can expect to see intermittent weekly outflows should a technical normalization take hold with evidence of more active supply trends for the second half of 2019.
"It is important that investors remain nimble and be prepared to act under a number of different scenarios. It makes sense to pay attention to the idiosyncratic characteristics that define the municipal bond market, with a particular focus on very unique inefficiencies that have traditionally unlocked opportunity and value for the savvy investor."
Lipton said that advancing volatility throughout the remainder of the year could make for more pronounced opportunities.
"If we do see advancing new-issue supply, we would expect this to come with better price discovery and improved liquidity conditions," he said. "The relative tightness in quality spreads does not seem to provide fertile ground for extending risk, and for investment quality portfolios, we favor an upward bias in credit quality and portfolio repositioning should reflect the potential impact of a shift in the economic cycle."
He added that he would also suggest the application of a Barbell Strategy given the telegraphed scenarios for Central Bank policy as a way to lock in currently attractive yields on the long-end — thanks to heightened demand for short-dated securities — should rates move lower, and have flexibility to move out along the curve should rates trend higher.
When searching for appropriate bonds, Lipton noted that consideration can be given to out-of-state bonds even when there is a home-state tax liability.
"This may not always be an efficient strategy, but we do like it for added portfolio diversification. In certain instances, it may make sense to acquire the out-of-state bond and pay the home-state tax while earning a similar or better yield than what could be obtained on an in-state bond that is exempt from state taxation."
Lipton continued to say that given the diluted tax benefits associated with SALT deductibility constraints, demand for in-state paper has strengthened, thus making these securities more expensive in high-tax states like New Jersey, New York and California.
Previous session's activity
The MSRB reported 30,718 trades Monday on volume of $6.976 billion. The 30-day average trade summary showed on a par amount basis of $11.03 million that customers bought $5.81 million, customers sold $3.29 million and interdealer trades totaled $1.93 million.
California, Texas and New York were most traded, with the Golden State taking 16.423% of the market, the Lone Star State taking 12.053% and the Empire State taking 10.917%.
The most actively traded security on Friday was the Illinois Series 2003 GO 5.1s of 2033, which traded 27 times on volume of $33.25 million.
Treasury to sell $35B 4-week bills
The Treasury Department said it will sell $35 billion of four-week discount bills Thursday. There are currently $35.000 billion of four-week bills outstanding.
Treasury also said it will sell $35 billion of eight-week bills Thursday.
Treasury auctions notes
The Treasury Department Tuesday auctioned $40 billion of two-year notes with a 1 3/4% coupon at a 1.825% yield, a price of 99.853360. The bid-to-cover ratio was 2.50.
Tenders at the high yield were allotted 32.14%. The median yield was 1.800%. The low yield was 1.588%.
Gary E. Siegel contributed to this report.
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 Ziad Saba at 212-803-6079 for more information.