A $542 million issue of Metropolitan Washington Airports Authority system revenue and refunding bonds was well received in a market starved for supply.
Bank of America Merrill Lynch priced the deal Thursday at yields ranging from 0.30% with a 4% coupon in 2015 to 3.96% with a 5% coupon in 2044.
"All the airport deals scheduled to come were heavily oversubscribed and received heavy demand this week," a trader on the West Coast said. "The yields for Metropolitan Washington were attractive."
The bonds earned an A1 from Moody's Investors Service, and AA-minus from Standard & Poor's and Fitch Ratings. The issuance has two sinking funds with term bonds in 2039 and 2044 respectively. They are callable at par in 2024.
A second trader on the West Coast said the bonds' prices were fair, but part of the reason the investors bought the deal was this year's low supply.
"With volume at 25% of levels where it was last year, folks are almost afraid not to invest in something," he said. "People that were on the sidelines hoping for yields to go higher now are wondering what they're supposed to do."
Volume as of April 30 totaled $89.34 billion, compared to $122.7 billion for the same period in 2013. Supply for this week totals a scheduled $4.2 million, down from $6.24 million last week.
Bonds on the long-end were wrapped with 4% coupons for 19, 20, and 25-year maturities. Some traders said investors purchasing long-end bonds should focus on those with 5% coupons, which offer more protection against interest rate risk.
The Washington Airport Authority's $430 million issuance earlier this month on May 14 was also received high demand from investors. JPMorgan Securities priced the deal at 4.40% with a 5% coupon in 2053.
Market participants said that investors found the $566.55 million Massachusetts Water Pollution Abatement Trust state revolving fund refunding bonds that entered their institutional sale period on Thursday attractive, despite high prices.
Bank of America Merrill Lynch priced the bonds with yields ranging from 0.14% with a 5% coupon in 2015 to 2.70% with a 5% coupon in 2028.
"Massachusetts paper trades like a food fight, and since it's a utility, an essential service system, it will be pretty popular," a trader in New York said. "It's going to trade super rich and people will buy it anyway, because they're starved for Massachusetts paper."
The bonds earned triple-A ratings from Moody's Investors Service, Standard & Poor's, and Fitch Ratings. A retail order period was held on Wednesday, and the bonds can be called in 2024 at par.
"The Massachusetts deal will get a fair amount of demand," a second trader in New York agreed.
The first trader in New York noted the mere fact it's a larger than $500 million issuance coming during a short, low-volume week will amp up the demand.
"Bank of America will bang it out pretty decently," he said.
The second trader on the West Coast does not see demand for munis abating anytime soon.
"We're not going to change the pattern anytime soon, this isn't the time of year for that to happen," he said. "Seasonally June and July are supportive because of coupon payments."
The Municipal Market Data triple-A 10-year scale fell one basis point Thursday to 2.14%, the 20-year was down one basis point at 2.99%, and the scale for 30-year bonds dipped one basis point to 3.25%.
The Municipal Market Advisors 5% high-grade 10-year scale was flat at 2.17%, down one basis point to 3.18% in 20 years, and the scale for 30-year bonds declined one basis point to 3.43%.
Yields on 10- and 30-year Treasury bonds, however, inched up one and three basis points, respectively, to 2.46% and 3.32%. The two-year note remained flat at 0.38%.
