Golden State’s tobacco bonds priced

BB-062018-munimid

Municipal bonds were stronger on Tuesday as California’s big tobacco bond deal was priced for institutions.

Primary market
Citigroup priced the Golden State Tobacco Securitization Corp.’s $1.68 billion of Series 2018A-1 tobacco settlement asset-backed bonds, comprised of serial and turbo term bonds.

The serial bonds were priced as 5s to yield from 3.17% in 2030 to 3.40% in 2035, ranging from a spread of 62 to 63 basis points over the comparable Municipal Market Data AAA maturity.

The $250 million of turbo terms of 2036 were priced at par to yield 3.60%, 171 basis points over the comparable MMD AAA maturity.

The $1 billion of turbo terms of 2047 were split into $600 million of 5s, priced to yield approximately 4.875%, or 202 basis points over the comparable MMD maturity, and $400 million of 5 1/4s priced to yield approximately 4.625%, or 177 basis points over the comparable MMD maturity.

S&P Global Ratings assigns the bonds structured finance preliminary ratings as follows: BBB on the 2030 to 2035 serial maturities and BBB-minus on the 2036 turbo term bonds. S&P did not rate the turbo term bonds due June 1, 2047.

In the short-term competitive sector, Idaho sold $550 million of Series 2018 tax anticipation notes.

Bank of America Merrill Lynch won the TANs.

The deal is rated MIG1 by Moody’s Investors Service, SP1-plus by S&P and F1-plus by Fitch Ratings. Piper Jaffray is financial advisor and MSBT Law is bond counsel.

Houston is selling $225 million of Series 2018 tax and revenue anticipation notes.

The TRANs are rated MIG1 by Moody’s and F1-plus by Fitch. Financial advisors are Hilltop Securities and YaCari Consultants; bond counsel are Francisco G. Medina and Bracewell & Giuliani.

Wednesday’s bond sales

Idaho:
Click here for the state note sale

Bond Buyer 30-day visible supply at $6.85B
The Bond Buyer's 30-day visible supply calendar decreased $1.87 billion to $6.85 billion on Wednesday. The total is comprised of $1.74 billion of competitive sales and $5.10 billion of negotiated deals.

Oppenheimer: Demand for munis strong
Oppenheimer & Co. says since demand remains strong for municipal securities and there hasn’t been a big rise in the new issue calendar, it’s expected there wasn’t much downward pressure on muni performance in June.

Supply is expected to be manageable throughout the summer so munis may move closer to or see positive returns by the end of the summer, Jeffrey Lipton, managing director and head of muni research and strategy at Oppenheimer & Co., writes in a market comment.

“Looking at the muni yield curve provides some interesting observations, and potential opportunities; presently, the long-end of the curve can offer value as the 30-year benchmark relative value ratio stands very close to parity,” Lipton says. “Thus, there is an opportunity to lock in attractive long-term yields for those less-duration-conscious and buy-and-hold investors given a relative steepening of the muni yield curve over recent weeks.”

Oppenheimer continues to believe many buyers can find value in munis while containing duration risk.

“Furthermore, for those more interest rate sensitive buyers, employing a ‘barbell strategy’ still makes sense,” Lipton said. “Here, investors can add protection on the short-end given a rise in rates, thus reducing reinvestment risk and lock in higher long-term returns if rates fall.”

He added that as municipal note season arrives, there are opportunities to take advantage of a segment of the market that has performed relatively well with ample liquidity given the concern over
monetary policy.

ICI: Long-term muni funds see $326M inflow
Long-term municipal bond funds saw an inflow of $326 million in the week ended June 13, the Investment Company Institute reported.

This followed an inflow of $648 million into the tax-exempt mutual funds in the week ended June 6 and inflows of $661 million, $185 million and $450 million in the three prior weeks.

Taxable bond funds saw an estimated inflow of $5.24 billion in the latest reporting week, after seeing an inflow of $726 million in the previous week.

ICI said the total estimated inflows to long-term mutual funds and exchange-traded funds were $9.94 billion for the week ended June 13 after outflows of $4.16 billion in the prior week.

BB-062118-MUN

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 one basis point in the one- to 30-year maturities.

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

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

Treasury bonds were weaker as stock prices turned mixed.

On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 85.1% while the 30-year muni-to-Treasury ratio stood at 97.8%, 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 42,042 trades on Tuesday on volume of $12.33 billion.

California, Texas and New York were the states with the most trades, with the Golden State taking 15.707% of the market, the Lone Star State taking 15.25% and the Empire State taking 12.464%.

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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