Between $5 billion and $6 billion of new supply flooded into the municipal bond market on Wednesday as numerous deals were sold and priced.
New Jersey came to market with $525 million of general obligation bonds in the competitive arena while two issuers from Texas came to market with almost $2 billion of debt in the negotiated sector.
High-grade municipal bonds remained stable in the face of the avalanche of new issuance.
And trading activity remained pretty perky, according to market participants.
"The day is just bouncing along," a trader in Texas said. "There's been lots of retail-type trades and they've been all over the place - from shorts to longs to zeros."
He added that the recent deals look appealing to mom and pop investors who getting ready for the holidays by "stuffing their little Christmas stockings with munis."
Primary Market/Competitive
New Jersey sold $525 million of general obligation bonds in the competitive arena while two issuers from Texas came to market with almost $2 billion of debt in the negotiated sector.
Bank of America Merrill Lynch won the Garden State's $525 million of GOs with a True Interest Cost of 3.3190%. The bonds were priced as serials to yield from 0.375% with a 5% coupon in 2016 to 3.73% with a 4% coupon in 2035. The issue is rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings.
Shortly after the sale, Moody's released two credit reports on New Jersey.
The first report looks at the revised unfunded pension liability numbers New Jersey recently issued under new accounting rules from the Governmental Accounting Standards Board.
"With the new rules, New Jersey's pension liabilities more than doubled to $83 billion for the fiscal year ended June 30, 2014, and in line with Moody's adjusted net pension liability for the state of $77 billion, released in our Nov. 20 report," the report states. "The state's new disclosures, as well as our ANPL calculation, underscore the significant pension funding challenges that New Jersey faces."
Moody's cited the state's new forecasts for its two largest pension plans - the Public Employees Retirement System and the Teachers Pension and Annuity Fund.
"The plans could fully expend their assets as soon as 2024 and 2027, respectively, even assuming the funds meet assumed investment returns. This projection, which under new accounting rules must incorporate employer contribution assumptions that give weight to actual funding in the past five years, indicates New Jersey's limited time to identify structural solutions to its pension liabilities," Moody's stated.
In the second report, Moody's says that despite the lagging economic recovery and the state's ongoing fiscal challenges, most of the state's local government credit strength will be stable in 2015.
"While New Jersey's cities and counties share the same economy as the state, local governments benefit from a number of factors, including far better funded pension plans, the stability of property tax revenues, the low amount of state aid, and a strong institutional framework," Moody's said.
Primary Market/Negotiated
Bank of America Merrill Lynch priced the Texas Transportation Commission's $1.845 billion of general obligation mobility fund bonds, a combination of new money and refunding. The $1.595 billion of Series 2014A bonds were priced to yield from 0.65% with a 5% coupon in 2017 to 3.22% with a 5% coupon in 2044. The $250 million of Series 2014B SIFMA Index floating rate bonds were priced to yield 38 basis points above the SIFMA Index in a bullet maturity of 2041 with a mandatory tender date in 2018 and an optional call in 2018. The issue is rated triple-A by Moody's, S&P and Fitch.
The TCC is also planning a $1.6 billion refunding early in 2015, which will retire most of the outstanding debt for the Central Texas Turnpike System. The two issues could refund a $900 million Transportation Infrastructure Finance and Innovation Act loan.
The Texas Department of Transportation built and manages the turnpike system and issues bonds under the name of TTC. TxDOT is expected to end this year with a record $5 billion of bond issuance, making it the largest issuer in the Southwest.
Another Texas transportation issuer that came to market on Wednesday was the North Texas Tollway System.
Morgan Stanley repriced the $224.33 million of first tier variable-rate revenue refunding bonds (SIFMA Index floating rates). The bonds were priced at par to yield 67 basis points above the SIFMA Index in a bullet maturity of 2038 with a mandatory put in 2020 and an optional call in 2019. The issue is rated A2 by Moody's and A-minus by S&P.
Also on Wednesday, Bank of America Merrill Lynch priced the Phoenix, Ariz., Civic Improvement's $600 million junior lien water system revenue bond. The $153.89 million Series of 2014A bonds were priced to yield from 1.13% with a 2% coupon in 2019 to 3.37% with a 4.75% coupon in 2044. The $446.21 million of Series 2014B bonds were priced to yield from 0.30% with a 5% coupon in 2016 to 3.03% with a 4% coupon in 2029.The bonds are rated Aa2 by Moody's and triple-A by S&P.
JPMorgan Securities priced $301.96 million of Illinois Finance Authority revenue refunding bonds. The issue was priced to yield from 1.36% with a 5% coupon in 2019 to 3.45% with a 5% coupon in 2038. The bonds are rated Aa2 by Moody's and double-A by S&P and Fitch.
Goldman, Sachs & Co. priced for institutions $740.74 million of New York State Thruway Authority general revenue refunding bonds after the retail pricing on Tuesday. The bonds were priced to yield from 1.17% with a 3% coupon in 2019 to top yields in a 2032 split maturity with a 3.52% yield with a 3.50% coupon and with a 3.20% yield with a 5% coupon. The issue is rated A2 by Moody's and A by S&P except for the 2028 and 2031 maturities which are insured by Assured Guaranty Municipal Corp. and rated A2 by Moody's and double-A by S&P.
Late Tuesday, Wells Fargo Securities priced the $766.16 million of Miami-Dade County, Fla., aviation revenue refunding bonds, alternative minimum tax and non-AMT for institutions. The $602.34 million of AMT bonds were priced to yield from 0.25% with a 1% coupon in 2015 to 3.77% with a 5% in 2036. The $163.815 million of non-AMT bonds were priced to yield from 0.20% with a 1% coupon in 2015 to 3.45% with a 5% coupon in 2037. The issue is rated A2 by Moody's and A by S&P and Fitch Ratings.
Puerto Rico Trading
On Wednesday, the Federal Bureau of Investigation arrested the treasurer of the Puerto Rico Highways and Transportation Authority on bribery charges. The arrest came after the Puerto Rico House of Representatives passed a measure late on Tuesday to prop up the agency with an oil tax increase. The Senate is now considering the bill.
Looking at market activity, Puerto Rico HTA 5 1/4s of 2039 traded 20 times on Wednesday on volume of $780,000 with a high/low price of 68.665/68.069 and a high/low yield of 8.321%/8.244%, according to the Municipal Securities Rulemaking Board's EMMA website. In contrast, on Tuesday the bonds traded nine times on volume of $635,000 with a high/low price of 69.625/67.065 and a high/low yield of 8.452%/8.123%.
Puerto Rico HTA 4.95s of 2026 traded 12 times on Wednesday, on volume of $360,000 with a high/low price of 102.128/100.126 and a high/low yield of 4.923%/4.513%. The bonds traded on Tuesday seven times on volume of $375,000 with a high/low price of 102.128/98.397 and a high/low yield of 5.135%/4.513%, according to EMMA.
"Typically, when there's bad news out of Puerto Rico it takes a few days before traders react, after they decide what the damage really is," according to a market analyst.
Two other Puerto Rico HTA issues also traded on Wednesday, although less actively.
The HTA 5 1/4s of 2036 traded seven times on volume of $415,000 with a high/low price of 100.899/98.49 and a high/low yield of 5.369%/5.18%. The bonds traded on Tuesday three times on volume of $15,000 with a high/low price of 98.75/94.75 and a high/low yield of 5.675%/5.348%.
Additionally, the HTA 5 1/4s of 2038 traded six times on volume of $115,000 with a high/low price of 93.586/89.366 and a high/low yield of 6.107%/5.75%. The bonds traded on Tuesday 11 times on volume of $750,000 with a high/low price of 94/89.564 and a high/low yield of 6.089%/5.716%, according to EMMA.
Secondary Market Trading
The secondary market took a back seat to the primary on Wednesday, with high-grade municipal bond prices remaining flat. The yield on the benchmark 10-year general obligation was unchanged at 2.08% from Tuesday's close while the yield on 30-year GOs was also flat, at 3.02% from Tuesday, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were little changed, with the two-year note yield rising to 0.55% from 0.53% on Tuesday. The 10-year yield increased to 2.29% from 2.28% while the 30-year slipped to 2.99% from 3.00% on Tuesday.
On Wednesday, the 10-year muni-to-Treasury ratio closed at 91.1% versus 91.1% on Tuesday. The 30-year muni to Treasury ratio closed at 101.0%, compared with 100.6% on Tuesday. The ratio is calculated by taking the yield on a triple-A rated muni and comparing it to the yield on a Treasury of the same maturity. The higher the ratio, the more attractive munis are to Treasuries.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 40,799 trades on Tuesday for volume of $8.458 billion.
Most active on Tuesday, based on the number of trades, were the New Jersey State Trust Fund Authority Transportation Program's 2014 Series AA 4 ¼s of 2044 which traded 264 times with an average price of 99.233 for an average yield of 4.275%.
Tax-Exempt Money Market Assets Slip
Tax-exempt money market fund assets slipped $800,000 to $252.65 billion in the week ended Dec. 2, according to The Money Fund Report, a service of iMoneyNet.com. The decline compares to a fall of $148.9 million in the previous week.
The average seven-day yield for the 409 weekly reporting tax-exempt money market funds remained unchanged at 0.1%.
Overall, the combined total assets of the 1,406 weekly reporting money market funds rose $7,84 billion to $2.694 trillion in the latest reporting week.
