Prices of top-shelf municipal bonds finished stronger on Thursday, according to traders, as yields fell by as much as four basis points.
In the primary, the Dormitory Authority of the State of New York sold more than $1 billion of personal income tax bonds, or PITs, in the competitive sector.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Thursday fell four basis points to 2.34% from 2.38% on Wednesday, while the yield on the 30-year GO dropped four basis points to 3.32% from 3.36%, according to the final read of Municipal Market Data's triple-A scale. Secondary trading was light to moderate, according to Interactive Data.
Among securities tracked by Market, the Puerto Rico commonwealth 8s of 2035 were yielding 10.32% on Thursday compared to 10.15% on Wednesday and 10.01% on Tuesday.
Treasury prices were also higher on Thursday with the yield on the two-year Treasury note dropped to 0.72% from 0.73% from Wednesday, while the 10-year yield decreased to 2.39% from 2.47% and the 30-year yield fell to 3.11% from 3.20%.
The 10-year muni to Treasury ratio was calculated on Thursday at 98.2% versus 96.2% on Wednesday, while the 30-year muni to Treasury ratio stood at 106.9% compared to 104.9%, according to MMD.
Primary Market
DASNY sold its bond offering in five parts.
Morgan Stanley won the $415.87 million of Series 2015B tax-exempt Group C state PIT revenue bonds with a true interest cost of 4.29%. The PITs were priced as 5s to yield from 3.48% in 2036 to 3.71% in 2045.
RBC Capital Markets won the $393.32 million of Series 2015B tax-exempt Group B state PIT revenue bonds with a TIC of 3.74%. The bonds were priced as 5s to yield from 2.76% in 2026 to 3.46% in 2035.
JPMorgan won the $241.36 million of Series 2015B tax-exempt Group A state PIT revenue bonds with a TIC of 2.15%. The PITs were priced to as 5s to yield from 0.62% in 2017 to 2.61% in 2025.
JPMorgan won the $97.62 million of Series 2015D taxable state PIT revenue bonds with a TIC of 2.79%. No pricing information was available. Citi won the $29.92 million of Series 2015C tax-exempt state PIT revenue bonds with a TIC of 3.68%. No pricing information was available.
The PITs were rated Aa1 by Moody's Investors Service and triple-A by Standard & Poor's.
Ahead of the sale, a DASNY spokesperson said they were breaking the financing into smaller sized tranches, in the hopes it would encourage more aggressive bidding.
"I agree with their tactic and I think it worked more because of the timing of the deal and not necessarily the strategy," said a New York trader. "If the market was falling out it could have hurt them, but in a rallying market, which we got today, it benefited them. Four different firms bought the bonds, so they spread out their risk. It is a lot easier to take on risk in an up market."
The trader said he thought the deal did well.
"It came on the right spreads," the trader said. "They look a little cheaper because of what is going on with the Treasuries. Because it is a competitive, we won't really know how it did right away, but my gut would tell me it did just fine, based on where they bought them."
The DASNY spokesman said bond proceeds are expected to be used to fund various capital projects for State University of New York's educational facilities; to fund capital projects for the Office of Mental Health (OMH), the Office for Persons with Developmental Disabilities and the Office of Alcoholism and Substance Abuse Services; to fund capital projects for the OMH voluntary agency facilities; to reimburse the state or fund various environmental projects which may be administered by the Department of Environmental Conservation, the Department of Agriculture and Markets, the Department of State and the Office of Parks, Recreation and Historic Preservation; to fund the Expanding our Children's Education and Learning capital program; and to fund Economic Development Grants.
DASNY returned to the market a week after Citi priced a $504 million North Shore Long Island Jewish Health System bond offering for the issuer in the negotiated sector.
BlackRock Holds Muni Roundtable
Peter Hayes, Sean Carney and James Schwartz of BlackRock led a round table discussion on Thursday about the state of municipal bond market.
BlackRock said that while the muni market lost ground in May, it believes that demand will come back with performance.
Despite a recent drop in refundings, the analysts said that new money issuance is increasing and will fill the help fill in the gap left by the declining refunding sales.
"We are on pace for more than $425 billion in total issuance," said Sean Carney, director and head of municipal strategy. "Anything above $400 billion, according to our calculations, would give us a net positive supply year. The past four years we have seen net negative years and it is a fantastic technical."
Carney added that that June is a transition month for the market.
"June is one of the poorest months, third to March and October. One of the reasons is that you are heading into quarter end, balance sheet pressure," he said. "The underlying tone of the market feels better today than it has in the past few weeks, but it will be around week 26 before we see that in performance."
Tax-Exempt Money Market Funds Post Inflows
Tax-exempt money market funds experienced inflows of $1.99 billion, bringing total net assets to $246.08 billion in the period ended June 8, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.09 billion to $244.09 billion in the previous week.
The average, seven-day simple yield for the 395 weekly reporting tax-exempt funds remained at 0.01% for a 110th straight week.
The total net assets of the 992 weekly reporting taxable money funds fell $16.11 billion to $2.385 trillion in the period ended June 9, after experiencing an inflow of $6.28 billion to $2.401 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 21st consecutive week.
Overall, the combined total net assets of the 1,387 weekly reporting money funds decreased $14.12 billion to $2.631 trillion in the period ended June 9, which followed an inflow of $5.19 billion to $2.645 trillion the week before.
