Prices of top-rated municipal bonds on Tuesday closed weaker again, traders said, as yields on some top-rated munis increased by as much as seven basis points. The yield on the 10-year benchmark muni general obligation rose above the psychologically important 2% level, according to the Municipal Market data's triple-A scale.
About $392 million of new competitive supply from Washington state hit the screens as the first of the week's big new issues came to market.
Secondary Market
The yield on the muni 10-year GO rose by six basis points to 2.02% on Tuesday from 1.96% on Monday, while the yield on 30-year GOs increased seven basis points to 2.84% from 2.77% according to the final read of MMD's triple-A scale.
Since the start of the month, the yield on the muni 10-year benchmark general obligation is up by 28 basis points, while yield on the 30-year GO is 34 basis points higher, according to MMD.
Treasury prices were lower. The two-year note yield rose to 0.65% from 0.64% on Monday, while the 10-year yield increased to 1.98% from 1.94% and the 30-year yield was up to 2.56% from 2.51%.
The 10-year muni to Treasury ratio was calculated at 101.6% on Tuesday from 100.9% on Monday, while the 30-year muni to Treasury ratio stood at 110.5 compared to 110.1%.
Puerto Rico Trades
Prices of Puerto Rico general obligation bonds and Puerto Rico Electric Power Authority (PREPA) bonds were trading higher on Tuesday.
Last week, a federal judge ruled that the commonwealth's Recovery Act was unconstitutional. On Tuesday, Moody's Investors Service said the ruling, which the commonwealth is appealing, is credit neutral "because it does not alleviate the fundamental pressures on Puerto Rico's central government, or on its public corporations, which can restructure and default outside of the bankruptcy-like process that the law was meant to provide."
Moody's added that "This decision also does not change our view on the likelihood of a PREPA default, which we expect to occur later this year and which is already incorporated in our Caa3 rating."
According to the MSRB's EMMA website, the PREPA 2010 Series ZZ power revenue 5s of 2018 traded one time on Tuesday at 59.25 to yield 22.959%, on volume of $4.615 million. In contrast, the bonds traded Monday at 59, a yield of 23.098%, on volume of $4.615 million, and on last Wednesday two times at a low price of 50.375, a high yield of 28.884%, on volume of $9.03 million.
Puerto Rico GO 8s Series 2014A of 2035 traded 27 times on Tuesday on volume of $35.5 million with a low price of 82.125, a high yield of 10.08%. On Monday, the bonds traded 31 times on volume of $65.85 million with a low price of 81, a high yield of 10.235%, down from Friday, when the GOs traded 21 times on volume of $58.6 million with a low price of 83.375, a high yield of 9.912%, according to EMMA.
The Puerto Rico Series 2012A public improvement refunding 5s of 2041 were yielding 8.21% on Tuesday, compared to 8.16% on Monday, according to Markit, which tracks secondary trading of active securities.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 31,428 trades on Monday on volume of $6.449 billion. Most active on Monday, based on the number of trades, was the Wayne County Building Authority, Mich., 2010 taxable jail 10s of 2040, which traded 82 times with an average price of 94.845 and an average yield of 10.578%.
Primary Market
Leading off the competitive calendar were three separate sales from Washington state totaling about $392 million, which went up for competitive bidding on Tuesday.
All three issues were won by Bank of America Merrill Lynch. The bonds were rated Aa1 by Moody's and AA-plus by Standard & Poor's and Fitch Ratings.
The $147.185 million Series R-2015F GO refunding motor vehicle fuel tax bonds were won with a true interest cost of 2.8266%. The 2015 maturity was priced as 3s to yield 0.25% and the remainder of the issue was priced to yield from 1.17% with a 5% coupon in 2019 to 2.83% with a 5% coupon in 2031.
The $132.475 million Series R-2015H general obligation refunding motor vehicle fuel tax bonds were won with a TIC of 3.2316%. The bonds were priced to yield from 2.51% with a 5% coupon in 2026 to 3.20% with a 4% coupon in 2031.
The $112.960 million Series R-2015G GO refunding various purpose bonds were won with a TIC of 2.4324%. The 2015 maturity was priced as 3s to yield 0.15% and the remainder of the issue was priced to yield from 0.96% with a 4% coupon in 2018 to 2.68% with 5% coupon in 2028.
Washington was in the market just last month, when it sold almost $1 billion of bonds in four separate competitive sales. The Jan. 21 sales saw TIC averages of 3.26% on all four deals for the state.
Topping the week's negotiated slate is the South Carolina Public Service Authority's $1.06 billion of revenue obligations.
The deal for Santee Cooper is scheduled to be priced by Barclays Capital on Wednesday for institutions.
From 2004 through 2014, about $9.1 billion of debt was issued for Santee Cooper, with new money accounting for $4 billion, refundings making up $2.5 billion, and combined refundings and new money totaling $2.6 billion. The largest sales occurred in 2013 and 2014, when more than $1 billion of bonds were issued in each of those years.
In negotiated action on Tuesday, Morgan Stanley priced the New York State Mortgage Agency's $132.285 million homeowner mortgage revenue bonds.
The SONYMA $60 million Series 190 non-AMT bonds were priced at par to yield from 3.45% in 2030, 3.65% in 2035, 3.80% in 2040 and 3.85% in 2045. The $72.285 million Series 191 AMT bonds were priced at par to yield from 0.40% in 2015 to 3% in 2024; a 2034 term bond was priced as 3 1/2s to yield 1.95%. The issue is rated Aa1 by Moody's.
