How marketing of munis will change
Munis have changed a tremendous amount in the past five years, but the evolution is not complete, with more to come, a strategist says.
"We are moving towards the democratization of information, although we are not all the way yet,” Stephen Winterstein, managing director of research & chief strategist at Wilmington Trust Investment Advisors, Inc., said. “Munis lends itself more to a retail environment, going through evolution and it is going to involve a complete restructuring about how bonds come to market.”
Winterstein spoke at the TAAB fixed income 2018 evolutionary tipping point conference panel discussion about municipals, in New York Tuesday.
The municipal market and fixed income in general have started to join the technology wave, employing alternative trading systems and it has also seen a boom from data aggregation services as well as rampant activity in the evaluation and pricing industry.
“In last five years so, we have seen the brokers-brokers come directly to the buy side, with no middle or third party facilitator,” he said. “The benefits between the two differ, depending on market conditions. In an illiquid market, it is nice to go through the old school, more disclosed, route for example.”
Goldman Sachs priced the state of Connecticut’s $800 million of Series 2018A special tax obligation bonds for transportation infrastructure purposes.
The issue was priced to yield 1.80% with 4% and 5% coupons in a split 2020 maturity to 3.43% with a 5% coupon in 2038. A 2019 maturity was offered as a sealed bid.
The deal is rated AA by S&P Global Ratings, A-plus by Fitch Ratings and AA-plus by Kroll Bond Rating Agency.
Since 2008, the Constitution State has sold about $30.54 billion of bonds, with the most issuance occurring in 2008 when it sold $4.21 billion and the least amount in that span, prior to this year, in 2017 when it sold $1.54 billion.
JPMorgan Securities priced the Connecticut Health and Educational Facilities Authority’s $275 million of revenue bonds, a remarketing, for Yale University.
The $125 million of 2003 Series X-2 bonds were priced at par to yield 1.875% in 2037 with a mandatory tender date of 2021.
The $150 million of Series 2010-3 bonds were priced at par to yield 1.875% in 2049 with a mandatory tender date of 2021.
The deal is rated triple-A by Moody’s Investors Service and S&P.
Bank of America Merrill Lynch priced the Massachusetts School Building Authority’s $395 million of Series 2018A subordinated dedicated sales tax bonds for institutions after holding a one-day retail order period.
The issue was priced as 5s to yield from 1.58% in 2020 to 2.66% in 2038. A 2043 maturity was priced as 5s to yield 3.03% while a 2048 maturity was priced as 5s to yield 3.08%. The 2018 and 2019 maturities were offered as sealed bids.
The deal is rated Aa3 by Moody’s, AA by S&P and AA-plus by Fitch.
BAML priced the Regents of the University of Michigan’s $137.055 million of Series 2018A general revenue bonds.
The issue was priced to yield from 1.43% with a 5% coupon in 2019 to 3.06% with a 4% coupon in 2038. A 2043 maturity was priced as 4s to yield 3.13% and a 2048 maturity was priced as 5s to yield 2.86%.
The deal is rated triple-A by Moody’s and S&P.
In the competitive arena on Wednesday, the Kershaw County School District, S.C., sold $129 million of Series 2018A general obligation bonds.
Pricing information was not immediately available. The deal is rated Aa1 by Moody’s and AA by S&P.
A day after it offered the Chicago Sales Tax Securitization Corp.’s tax-exempt bond deal to yield-hungry buyers, Goldman Sachs will price the taxable part of the deal on Wednesday.
On Tuesday, Goldman priced the corporation’s $376.275 million of Series 2018A tax-exempt bonds. The deal — which was delayed a week while the city revised the structure to include a taxable piece — drew 42 investors, was two times oversubscribed, and generated present value savings of 6.3%.
“Despite a changing market environment and ratios, these refunding bonds priced approximately 275 basis points tighter than similar maturities on the city’s most recent general obligation pricing just last year, demonstrating the strength of this credit and ability to achieve significant debt service savings on behalf of taxpayers,” Chicago’s chief financial officer Carole Brown said in a statement. The bonds refunded city GOs.
The city lists spreads on the December tax-exempt securitization at 26 basis points to 39 basis points on maturities from 2020 to 2030 and lists the spreads on the Tuesday sale at 52 basis points to 61 basis points on the maturities from 2031 to 2048 with 5% coupons, and 96 basis points on a 2048 tranche with a 4% coupon. All compare favorable to 329 basis point to 338 basis point spreads on 12-year to 17-year maturities in a 2017 GO sale.
Brown said while spreads widened, she disagreed with the calculation that the spread had doubled on Tuesday’s 2031 tax-exempt maturity from the 2030 maturity in the December deal. The city lists the spread on the December deal at a 39 basis points spread based on where the comparable AAA benchmark closed on the day of the pricing. The Bond Buyer calculated the spread at 24 basis points based on the yield at which the market closed the previous day. Yields saw a big drop throughout the day of the December pricing. The yield on Tuesday’s 2031 maturity was more than 40 basis points higher than the December 2030 maturity, reflecting the higher prevailing rates in the current market.
On Tuesday, Goldman took indications of interest on the corporation’s $304.05 million of Series 2018B taxables. The taxables were offered at yields of about 100 basis points over the comparable Treasury security in 2048.
The taxables have an expected average life of 27.2 years and are subject to a make-whole call feature.
Cabrera Capital Markets, Janney, Blaylock Van, Estrada Hinojosa and Siebert Cisneros Shank & Co. were members of the underwriting group.
The deal is rated AA by S&P Global Ratings and AAA by Fitch Ratings and Kroll Bond Rating Agency.
BAML is expected to price the city and county of Honolulu’s $304.785 million of wastewater system revenue bonds for institutions after holding a one-day retail order period.
The $219.265 million of senior Series 2018A first bond resolution bonds were priced for retail to yield from 3.29% with a 3.25% coupon in 2035 to 3.28% with a 4% coupon in 2038. A split 2042 maturity was priced as 3 3/8s to yield 3.45% and while the second half was not offered to retail; a 2047 maturity was not offered to retail.
The $34.47 million of senior Series 2018B first bond resolution refunding bonds were priced for retail as 5s to yield from 1.46% in 2018 to 2.21% in 2025.
The $42.015 million of junior Series 2018A taxable second bond resolution refunding bonds were priced for retail to yield from about 15 basis points above the comparable Treasury security in 2018 to about 45 basis points above the comparable Treasury security in 2023 and about 60 basis points above the comparable Treasury security in 2026.
The $9.035 million of junior Series 2018B second bond resolution refunding bonds were priced for retail as 4s to yield from 1.51% in 2018 to 2.14% in 2025.
The senior bonds are rated Aa2 by Moody’s and AA by Fitch and the junior bonds are rated Aa3 by Moody’s and AA-minus by Fitch.
Bond Buyer 30-day visible supply at $7.67B
The Bond Buyer's 30-day visible supply calendar decreased $1.55 billion to $7.67 billion on Wednesday. The total is comprised of $1.84 billion of competitive sales and $5.83 billion of negotiated deals.
Municipal and Treasury bonds weakened as the Dow Jones Industrial Average surged to a record high. The Dow rose on growing investor confidence after U.S. companies posted a strong earnings season.
The MBIS municipal non-callable 5% GO benchmark scale was weaker in midday trading.
The 10-year muni benchmark yield rose to 2.422% on Wednesday from the final read of 2.393% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield increased to 2.867% from 2.856%.
The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipal bonds are weaker at mid-session. The yield on the 10-year benchmark muni general obligation rose three to five basis points from 2.15% on Tuesday, while the 30-year GO yield gained three to five basis points from 2.73%, according to a read of MMD’s triple-A scale.
U.S. Treasuries were also weaker in midday trading. The yield on the two-year Treasury rose to 2.07% on Wednesday from 2.06% on Tuesday, the 10-year Treasury yield gained to 2.65% from 2.62% and the yield on the 30-year Treasury increased to 2.94% from 2.90%.
The Dow was up 0.21% at midday while the S&P 500 index dipped 0.09% and the Nasdaq fell 0.58%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 81.9% compared with 80.5% on Monday, while the 30-year muni-to-Treasury ratio stood at 94.0% versus 93.6%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 46,441 trades on Tuesday on volume of $11.94 billion.
California, Texas, and New York were the three states with the most trades on Tuesday, with the Golden State taking 12.863% of the market, the Lone Star State taking 10.652% and the Empire State taking 8.939%.
Treasury sells $15B of 2-year FRNs
The Treasury Department Wednesday auctioned $15 billion of two-year floating rate notes with a high discount margin of zero, at a zero spread, a price of par.
The bid-to-cover ratio was 3.38. Tenders at the high margin were allotted 97.36%.
The median discount margin was negative 0.010%. The low discount margin was negative 0.035%.
The index determination date is Jan. 22 and the index determination rate is 1.430%.
— Yvette Shields and Gary 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 Vanessa Kim at 212-803-8474 for more information.