Significant demand for yield from investors pushed the $1.2 billion Iowa Finance Authority deal to the spotlight Tuesday.
Municipal bond traders said appetite is insatiable for lower rated bonds and the Iowa deal saw very good reception.
Citi priced the Midwestern disaster area revenue bonds for the Iowa Fertilizer Company Project. The bonds are rated BB-minus by Standard & Poor’s and Fitch Ratings. Official pricing details were not immediately available, but earlier price talks indicated yields on the 2025 maturity were 346 basis points above the Municipal Market Data scale.
“I heard it is going well and Citi had high expectations for the deal and it’s going as advertised,” a Pennsylvania trader said.
“It seems cheap to me,” a Chicago trader said. “And these will have liquidity.”
As the Iowa junk bonds hit the market, traders said anything that offers yield in this environment is well received. “There is insatiable demand inside seven years,” the Pennsylvania trader said. “From single-A to triple-B everything is commoditized. There is nothing on the shelf and there is little discrimination between the underlying credits and deal structures. Everything is trading on top of each other.”
And even higher rated credits are seeing demand. The trader said he looked at a $50 million Kansas toll road deal that was all inside 2018. “It was 10 times oversubscribed and bumped five to eight basis points so there is demand in the front end.”
Elsewhere in the primary Tuesday, Goldman, Sachs & Co. priced $331.9 million of triple-A rated California Educational Facilities Authority bonds for Stanford University.
The deal included $301.7 million of new money revenue bonds. Yields on the first series of $262.3 million yielded 3.20% with a 5% coupon in 2043. Yields were lowered two basis points in repricing. The bonds are subject to a make-whole call. The bonds yielded 33 basis points above the 2043 MMD scale.
Yields on the second series of $39.4 million yielded 3.20% with a 5% coupon in 2043. Yields were lowered two basis points in repricing. The bonds are subject to a make-whole call.
The second part of the deal, $30.2 million of remarketing bonds, yielded 3.18% with a 5% coupon in 2039. The bonds are subject to a make-whole call.
Bank of America Merrill Lynch priced $244.1 million of El Paso County, Texas, Hospital District bonds, rated AA-minus by Standard & Poor’s and AA by Fitch.
Yields on the first series, $133.5 million of combination tax and revenue certificates of obligation, ranged from 0.46% with a 3% coupon in 2015 to 3.49% with a 5% coupon in 2043. Bonds maturing in 2014 were offered via sealed bid. The bonds are callable at par in 2023.
Yields on the second series, $110.6 million of general obligation refunding bonds, ranged from 0.69% with a 3% coupon in 2016 to 3.58% with a 4% coupon in 2035. The bonds are callable at par in 2023.
Morgan Stanley priced $128.2 million of triple-A rated Arlington County, Va., GO public improvement and refunding bonds.
Yields on the first series of $94 million ranged from 0.31% with a 4% coupon in 2015 to 2.73% with a 4% coupon in 2032. Bonds maturing in 2013 and 2014 were offered via sealed bid. The bonds are callable at par in 2021.
Yields on the second series of $34.2 million ranged from 1.41% with a 4% coupon in 2021 to 2.39% with a 4% coupon in 2027. The bonds are callable at par in 2023. Yields on bonds with 5% coupons were priced as much as four basis points tighter to the MMD scale and as much as six basis points higher than the MMD scale on respective maturities.
Municipal bond scales ended as much as three basis points stronger Tuesday.
Yields on the MMD 5% triple-A GO scale ended as much as three basis points lower. The 30-year yield slid three basis points to 2.84%. The 10-year closed unchanged for the third trading session at 1.69% and the two-year finished steady at 0.29% for the 18th session.
Yields on the Municipal Market Advisors 5% scale ended as much as two basis points lower. The 30-year yield dropped two basis points to 2.98%. The 10-year finished unchanged at 1.75% for the third session and the two-year was flat at 0.32% for the 18th session.
Treasuries reversed morning gains to end flat Tuesday. The benchmark 10-year and 30-year were flat at 1.67% and 2.88%, respectively. The two-year was unchanged at 0.22%.