LIPA leads the list of new deals as municipals strengthen on long end

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Municipals were steady to stronger on Tuesday as bond buyers saw the first of the week’s new deals come to market.

Yields on the long end of the AAA muni curves fell by as much as three basis points.

Primary market
Goldman Sachs priced and repriced the Long Island Power Authority, N.Y.’s (A2/A/A/NR) $507.025 million of electric system general revenue bonds.

The deal consisted of Series 2020A revenue bonds and Series 2020B mandatory tender revenue bonds.

The Series 2020A bonds were repriced to yield from 0.18% with a 5% coupon in 2022 to 1.68% with a 4% coupon in 2040. The Series 2020B bonds were repriced at par to yield 0.85% in 2050 with a mandatory tender in 2025.

The Series 2020A bonds had been tentatively priced to yield from 0.26% with a 5% coupon in 2022 to 1.80% with a 4% coupon in 2040. The Series 2020B bonds had been tentatively priced at par to yield 0.875% in 2050 with a mandatory tender in 2025.

Since 2020, LIPA has sold about $4.5 billion of debt with the most issuance occurring in 2012 when it sold $826 million. It didn’t come to market in 2013.

Barclays Capital priced Rutgers State University, N.J.’s (Aa3/A+/NR/NR) $220.9 million of taxable GO refunding bonds.

The bonds were priced at par to yield from 1.464% in 2027 to 2.183% in 2035, 2.556% in 2040 and 2.681% in 2045.

Barclays also priced Ohio’s (Aa2/AA/AA/NAF) $115.125 million of capital facilities lease-appropriation bonds.

The Series 2020A tax-exempt parks and recreation improvement fund project bonds were priced to yield from 0.21% with a 5% coupon in 2021 to 1.26% with a 5% coupon in 2032.

The Series 2020D taxable refunding bonds for administrative building
The Series 2020A tax-exempts were priced to yield from 0.21% with a 4% coupon in 2021 to 1.72% with a 4% coupon in 2040; a 2045 maturity was priced to yield 1.87% with a 4% coupon.

Piper Sandler priced and repriced the Phoenix Civic Improvement Corp., Ariz.’s (Aa2/AAA/AA+/NR) $131.595 million of Series 2020A tax-exempt subordinated excise tax revenue bonds.

The Series 2020A tax-exempts were repriced to yield from 0.15% with a 4% coupon in 2021 to 1.62% with a 4% coupon in 2040; a 2045 maturity was priced to yield 1.74% with a 4% coupon.

The tax-exempts had been tentatively priced to yield from 0.21% with a 4% coupon in 2021 to 1.72% with a 4% coupon in 2040; a 2045 maturity was priced to yield 1.87% with a 4% coupon.

In the competitive arena, the Missouri Board of Public Buildings (Aa1/AA+/AA+/NR) sold $172.85 million of Series 2020B special obligation refunding bonds. BofA Securities won the issue with a true interest cost of 0.3751%.

The bonds were priced to yield from 0.10% with a 5% coupon in 2020 to 0.55% with a 4% coupon in 2028.

Columbia Capital Management was the financial advisor. Gilmore & Bell and Fields & Brown were the bond counsel.

On Wednesday, BofA Securities is set to price Hawaii’s $900 million of Series 2020FZ general obligation bonds.

Ahead of the sale, Moody’s Investors Service lowered the state’s rating to Aa2 from Aa1 and revised the outlook to negative from stable due to the drop in tourism amid the COVID-19 pandemic.

On Wednesday, BofA Securities is set to price Hawaii’s (/AA+/AA+/) $900 million of Series 2020FZ GOs.

ICE adds ESG indexes
ICE Data Indices LLC said Tuesday that it has launched a new set of bond indices in response to growing demand for fixed-income benchmarks that take into account environmental, social and governance criteria.

“The new ICE ESG index bond family includes indices that follow common ESG investment methodologies such as ESG Best-in-Class and ESG Tilt,” ICE said in a press release. “Indices in the ICE ESG index bond family are modified versions of the standard ICE bond index family, and fall into two categories, namely corporate ESG indices and global government carbon reduction indices.”

The corporate indexes are:

  • ESG Tilt: Filter out companies with significant involvement in controversial weapons and tilt the weights of remaining constituents towards those with mattractive ESG risk scores
  • ESG Tilt with Duration Match: The same as the ESG Tilt method with additional weighting adjustments to match the Parent Index interest rate exposure across rating and sector segments as closely as practicable; and
  • ESG Best-in-Class: Filter out companies with significant involvement in controversial weapons and/or less attractive ESG risk scores. The weights of remaining constituents are then adjusted to closely match allocations to rating and sector segments of the parent index.

The global government carbon reduction indexes tilt the weights of constituent countries to lower the weighted average carbon footprint of the overall index while helping to minimize tracking error versus the starting capitalization-weighted parent index.

Secondary market
On Tuesday, municipals were stronger on the long end, according to the final readings on Refinitiv MMD’s AAA benchmark scale.

MMD reported yields on the 2021 and 2023 GO munis were unchanged at 0.11% and 0.13%, respectively. The yield on the 10-year muni fell one basis point to 0.64% while the 30-year yield dropped three basis points to 1.34%.

The 10-year muni-to-Treasury ratio was calculated at 124.8% while the 30-year muni-to-Treasury ratio stood at 112.6%, according to MMD.

“Municipal bonds continue their drive toward lower yields,” ICE Data Services said in a market comment. “One-year yields dropped to nine basis points, 15-years and in are below 1%.”

The ICE AAA municipal yield curve showed short yields down one basis point to 0.090% in 2021 and 0.108% in 2022. The 10-year maturity was down two basis points to 0.617% and the 30-year dropped three basis points to 1.376%.

ICE reported the 10-year muni-to-Treasury ratio stood at 130% while the 30-year ratio was at 113%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.09% and the 2022 maturity at 0.12% while the 10-year muni was at 0.65% and the 30-year stood at 1.35%.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were stronger as stock prices traded mixed.

The three-month Treasury note was yielding 0.092%, the 10-year Treasury was yielding 0.514% and the 30-year Treasury was yielding 1.194%.

The Dow rose 0.24%, the S&P 500 decreased 0.03% and the Nasdaq lost 0.22%.

On Monday, doldrums plagued the sell-side as activity was muted while last week’s firm prices held steady, according to a New York trader.

“Prices are still very firm and there’s not a lot of trading going on,” he said late Monday. However, he described the buy-side as flush with cash.

“We still have a lot of cash chasing too few bonds,” as investors have been supply challenged since much of the recent deals have been taxable municipal financings, and not fully tax-exempt, he said.

Investors are either sitting on the sidelines with available cash building from recent spring and summer redemptions or chasing whatever bonds they can find, and having to be flexible.

“People are balancing structure versus credit in order to get what they need,” he said. “If they need to absorb an uglier coupon or go down in the credit spectrum they are doing so,” he added.

Overall, the trader said, spread compression has held firm from last week when lower-rated bonds — especially A-rated health care paper — tightened by five to 10 basis points amid strong market technicals.

“There’s not a lot of big changes this week,” he said. “We are still seeing compression this week.”

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Primary bond market Secondary bond market Long Island Power Authority State of New York State of Ohio
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