Citi priced $1.78 billion of Jefferson County sewer revenue warrants Tuesday in the biggest deal of the week, cutting prices on senior debt from the retail ordering period.
In the first three series of senior lien bonds, yields were cut five basis points, 13 basis points, and three basis points, respectively, from retail pricing. Yields on the subordinate liens were lowered as much as 25 basis points between 2015 and 2018 but raised 15 and 25 basis points on 2042 and 2053 maturities on the Series 2013 D. Yields were raised as much as 13 basis points in 2050 on the Series 2013 F.
The bonds were priced as Jefferson County looks to exit bankruptcy. The senior lien bonds are rated BBB by Standard & Poor’s and BB-plus by Fitch Ratings. The senior lien series carries insurance from Assured Guaranty Municipal Corp. and ratings of A2 from Moody’s Investors Service and AA-minus from Standard & Poor’s. The subordinate bonds are rated BBB-minus by Standard & Poor’s and BB by Fitch.
Triet Nguyen, managing partner of Axios Advisors, wrote on MuniNetGuide that after looking at the Jefferson County pricing, the AGM insured tranches look “quite attractive, particularly for buyers who can use the 40-year maturities, such as life insurance companies.” The uninsured subordinate lien bonds look cheaper than an investment grade rating, Nguyen said.
“Jefferson County has now joined Puerto Rico in the 'controversial investment-grade rating category’. Virtually no one besides Standard & Poor’s views this credit as investment grade. Any financial institution whose potential participation hinges on the investment-grade rating should really think twice,” he said.
Traders said $40 to $50 million of the deal was bought in the first retail order period last Friday.
The high profile deal in the primary market left secondary traders competing for attention as bond prices continued to climb higher for a fourth session.
Traders said the bifurcation between the primary and secondary translated into lighter trading. Bonds are harder to buy as yields grind lower while new issues, including triple-A Illinois Finance Authority and a split triple-B and double-B Jefferson County, Ala., nabbed investors’ focus.
“The order flow is slow and money isn’t getting placed,” a trader located in the Southwest region said. “You can’t pay enough to buy in the secondary and if you do, it’s a grind to sell it. So it’s all new issue right now. October was good to great for order flow and this month isn’t. It’s just stagnant.”
Overall for the day munis had a firmer tone and traders paid higher prices for bonds in the secondary. “The standard deal is if a round lot goes out and doesn’t trade, you have to pay higher for it the next day,” he said. “It’s very difficult to buy bonds and when you do it’s a struggle to sell them to retail.”
High-quality bonds were the most liquid, a Chicago trader said. “There is lots of primary and it’s going well for solid credits,” a Chicago trader said.
In another primary deal, Bank of America Merrill Lynch priced $142 million of triple-A Illinois Finance Authority clean water initiative revolving fund revenue bonds. Yields ranged from 0.17% with a 1.5% coupon in 2014 to 2.85% and 2.91% with a 5% coupon in a split 2023 maturity.
Bonds with 5% coupons with January maturities between 2015 and 2023 had spreads ranging from eight basis points richer than Monday’s triple-A Municipal Market Data scale to 24 basis points cheaper than the scale. Bonds with 5% coupons with July maturities between 2015 and 2023 yielded five to 30 basis points above the scale.
In the secondary market, trades compiled by data provider Markit showed strengthening.
Yields on Ohio’s Buckeye Tobacco Settlement Financing Authority 5.125s of 2024 slid nine basis points to 7.28% and Massachusetts Bay Transportation Authority 5s of 2031 slid two basis points to 4.11%.
Yields on California 5s of 0242 and North Carolina Eastern Municipal Power Agency 5s of 2026 fell two basis points each to 4.74% 3.52%, respectively.
Yields on Texas A&M University 5s of 2020 and Texas 5s of 2042 fell one basis point each to 1.85% and 4.15%, respectively.
“The primary and secondary markets have completely dislocated from one another in yield,” said Dan Toboja, vice president at Ziegler Capital Markets who focuses on the high-yield market. “New issues continue to price cheap but the secondary has moved little in sympathy,” adding new deals for senior living or hospital bonds yield 7% or higher while similar issuers in the secondary yield 5%.
“The end result is very little is available for transactions,” Toboja said. “Sellers are offering to sell secondary bonds near evaluations and use the cash to purchase new issues with the expectation bids for secondary bonds will be near their evaluation prices. Dealers have been unable to produce bonds on the secondary near primary levels and sellers don’t want to take losses.”
On Tuesday, the triple-A Municipal Market Data scale ended stronger for the fourth consecutive session with yields falling as much as two basis points. The 30-year yield slid two basis points to 4.09%. The two-year and 10-year yields closed unchanged for the fourth session at 0.33% and 2.61%, respectively.
Yields on the Municipal Market Advisors benchmark scale ended as much as two basis points stronger. The 30-year yield slid one basis point to 4.30%. The two-year and 10-year yields were steady for the second session at 0.38% and 2.68%, respectively.
Treasuries weakened Tuesday. The 10-year and 30-year yields rose four basis points each to 2.71% and 3.80%, respectively. The two-year yield increased one basis point to 0.30%.