Florida deal upsized to $3.5 billion and California sells $2.5 billion

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Florida upsized its taxable bond sale by $1 billion and came to market Wednesday with a $3.5 billion deal that will help bolster the state’s Hurricane Catastrophe Fund. California’s $2.5 billion general obligation bond deal was also priced in the primary giving buyers a wide variety of paper to choose from.

"You cannot deny that save for a Federal legislative fix to bring back tax-exempt advanced refundings that this taxable market will be a game changer and something for all investors around the globe to monitor," a New York trader said. "This is essentially a market in flux. Where are we headed? How does the exemption factor into this space? Where do taxables? We're not equipped to predict the future, but I'm sure as heck going to say that we're in uncharted waters with this market right now, and yes, a taxable component is here to stay and issuers should take note."

Municipals finished firm on Wednesday, with yields up by as much as one basis point on the long end according to the AAA GO scales.

Primary market
BofA Securities priced the Florida State Board of Administration Finance Corp.’s (Aa3/AA/AA/NR) $3.25 million of Series 2020A taxable revenue bonds.

The taxables were priced at par to yield 1.258% in 2025 (+100 basis points to the comparable U.S. Treasury security), 1.705% in 2027 (+125 bps to Treasuries), and 2.154% in 2030 (+150 bps to Treasuries).

The size of the issue was raised by $1 billion from the originally planned $2.25 billion.

The deal was attractively priced, especially on the 10-year maturity, said one market source, who added that he wouldn't be surprised if the deal was oversubscribed two to three times — even at the upsized level.

On Monday, Ben Watkins, a member of the corporation's board and director of Florida's Division of Bond Finance, told Shelly Sigo of The Bond Buyer that there was a possibility the deal could be upsized.

“We're showing an offer of $2.25 billion that we could upsize if we like the pricing or downsize if we don't,” Watkins said.

“I think it'll be a very attractive opportunity for investors because historically the credit spreads have not reflected the underlying credit quality,” Watkins said, because some people don't understand the issuer's name and its linkage to the Cat Fund. “This is fundamentally a muni credit secured by taxes on insurance policies," he said.

Morgan Stanley priced and repriced California’s (Aa2/AA-/AA/NR) $2.6 billion sale of general obligation and refunding bonds Wednesday after a one-day retail order period.

The $1.648 billion of refunding GOs were repriced to yield from 0.15% with 3% and 5% coupons in a split 2021 maturity to 2.16% with a 4% coupon and 1.89% with a 4% coupon in a split 2040 maturity.

The $984.53 million of various purpose GOs were repriced to yield from 0.15% with a 5% coupon in 2021 to 0.75% with a 5% coupon in 2027, 1.08% with a 5% coupon in 2029, 1.27% with a 5% coupon in 2031, 1.35% with a 5% coupon in 2032, 1.62% with a 4% coupon in 2034, 1.67% with a 4% coupon in 2035, 2.21% with a 3% coupon and 1.49% with a 4% coupon in a split 2041 maturity, 1.61% with a 4% coupon in 2045, and 2.44% with a 3% coupon and 1.66% with a 4% coupon in a split 2050 maturity.

JPMorgan Securities priced Lincoln, Neb.’s (NR/AA/AA/NR) $185.435 million of Series 2020B taxable electric system revenue refunding bonds. The deal was priced at par to yield from 0.399% in 2023 to 2.099% in 2037.

Raymond James & Associates circulated a pre-marketing wire on Memphis, Tenn.’s $333.995 million Memphis Light, Gas and Water Division’s Series 2020A electric system revenue bonds, Series 2020 gas system revenue bonds, Series 2020 water system revenue bonds and Series 2020B taxable electric system revenue refunding bonds.

BofA received the written award on the Franklin County Convention Facilities Authority, Ohio’s (Aa1/AA/NR/NR) $202.705 million of tax and lease revenue anticipation refunding bonds with Columbus and Franklin County as lessees, consisting of Series 2020A tax-exempts and Series 2020B taxables.

Raymond James received the official award on the Dripping Springs Independent School District, Texas’ (NR/AAA/NR/NR) $119.255 million of taxable unlimited tax refunding bonds insured by the Permanent School Fund guarantee program.

"We have to be cognizant as a market that taxable issuance is a growing part of this market. To not pay attention is to lose business and access," the New York trader said. "We are on the cusp of a season change with this market and people need to pony up and notice these changes before the cart gets ahead of the horse."

ICI: Muni bond funds see $2.2B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $2.238 billion in the week ended Aug. 26, the Investment Company Institute reported Wednesday.

It marked the 17th week in a row the funds saw inflows. In the previous week, muni funds saw an inflow of $2.924 billion, ICI said.

Long-term muni funds alone had an inflow of $2.181 billion in the latest reporting week after an inflow of $2.790 billion in the prior week.

ETF muni funds alone saw an inflow of $57 million after an inflow of $134 million in the prior week.

Taxable bond funds saw combined inflows of $17.846 billion in the latest reporting week after inflows of $14.886 billion in the prior week.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $414 million after an inflow of $2.775 billion in the previous week.

Secondary market
High-grade municipals were unchanged on the short end while the long end strengthened a bit, according to the final readings on Refinitiv MMD’s AAA benchmark scale.

Yields were steady in 2021 and 2022 at 0.15% and 0.16%, respectively. The yield on the 10-year muni rose one basis point to 0.83% while the 30-year yield increased one basis point to 1.57%.

The 10-year muni-to-Treasury ratio was calculated at 127.1% while the 30-year muni-to-Treasury ratio stood at 113.9%, according to MMD.

The ICE AAA municipal yield curve showed the 2021 maturity unchanged at 0.140% and the 2022 maturity steady at 0.150%. The 10-year maturity was flat at 0.793% and the 30-year increased one half of a basis point to 1.585%.

ICE reported the 10-year muni-to-Treasury ratio stood at 127% while the 30-year ratio was at 113%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.15% and the 2022 maturity at 0.17% while the 10-year muni rose one basis point to 0.82% and the 30-year gained one basis point to 1.56%.

The BVAL AAA curve showed the yield on the 2021 maturity steady at 0.13%, the 2022 maturity flat at 0.15% while the 10-year muni was unchanged at 0.80% and the 30-year remained at 1.57%.

Treasuries were stronger as stock prices traded higher.

The three-month Treasury note was yielding 0.112%, the 10-year Treasury was yielding 0.649% and the 30-year Treasury was yielding 1.378%.

The Dow rose 1.20%, the S&P 500 increased `1.20% and the Nasdaq gained 0.70%.

“With the Labor Day weekend [coming up], markets could be expected to turn their focus to the race for the White House in a normal election year,” said Christopher Smart, global head of Barings Investment Institute.But this is hardly a normal year and not Fed action and COVID contagion rates have been far more influential.”

He said market participants would be watching the doings in D.C. as events in the nation’s Capitol took center stage.

“A much greater set of risks is coming into view in Washington, however, as Congress returns with no clear path to passing a significant stimulus bill that extends additional unemployment benefits and broader fiscal support for the ailing economy,” he said.

Smart said there were two reasons the market still expects something to happen.

“First, no elected politician wants to face voters in the midst of a deep recession having failed to deliver aid. The president’s executive orders have been helpful on the margin, but even Treasury Secretary Mnuchin insists more must be done,” Smart said. “Second, Congress most act on spending anyway because current funding for U.S. government operations expires at the end of the month.”

He said to watch out for a lot of “messy gamesmanship and a small, but rising chance that what is passed proves disappointing to investors.”

Lynne Funk contributed to this report.

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