New issues including a Los Angeles wastewater deal were well received Tuesday as the municipal market continued to welcome high quality, attractively priced offers.
“We’re fighting Treasuries, to some degree, but the new issues have done pretty well,” a trader in Los Angeles said, “That’s given us a little more direction and a little better footing here than we had yesterday.”
Muni yields followed those of Treasuries, which felt pressure on two fronts, the trader said. Treasury yields held their own early in the morning but made an about-face and turned higher before noon.
They face a stock market on a seemingly ever-higher trajectory, the trader said. The Dow Jones Industrial Average had another strong day, closing 116 points higher.
In addition, investors are hearing more talk of the Federal Reserve loosening short-term interest rates. And even if nothing is imminent on that front, “as long as there’s talk about it, we’re seeing a little bit of pressure, a little weakness there,” the trader said.
Some volume arrived Tuesday, but overall municipal issuance continues to be slight compared to this time last year. This week, $6.45 billion is expected to reach the market, which represents an increase from last week’s revised $5.24 billion.
The industry expects to see $5.05 billion in negotiated deals, up from last week’s revised $3.27 billion. On the competitive calendar, $1.40 billion should be auctioned, a decline from last week’s revised $1.97 billion.
There aren’t any deals slated to weigh in at more than $400 million, though. A deal consisting of airport revenue improvement bonds for Dallas-Fort Worth International Airport, at $366.0 million, leads the way.
Some of the week’s larger deals arrived Tuesday. Bank of America Merrill Lynch priced $351.2 million of Los Angeles wastewater system subordinate revenue refunding bonds. The bonds are rated Aa3 by Moody’s Investors Service and AA by Standard & Poor’s and Fitch Ratings.
Yields range from 0.20% with a 2.00% coupon in 2014 to 3.15% with a 5.00% coupon in 2035. The bonds are callable at par in 2023.
In repricing, yields were lowered two basis points at the front end of the curve, five basis points in 2020, and four basis points in 2035.
Los Angeles probably priced the wastewater deal cheaply out of the gate because the city wanted a good reception in what it felt was a weak market, a trader in Texas said. Once oversubscribed, the city could lower yields in repricing and save on borrowing costs, he added.
“It seems like they went out with an attractive price in a weak market and got it oversubscribed, and then got a bump out of it,” the trader said.
The Office of Finance for the city of Los Angeles did not respond to comment on the deal by press time.
B of A Merrill priced for retail $311.3 million of San Jose Financing Authority lease revenue refunding bonds for the Civic Center project. The bonds are rated Aa3 by Moody’s and AA by Standard & Poor’s and Fitch.
Yields range from 0.48% with a 3.00% coupon in 2015 to 3.63% with a 4.00% coupon in 2032. Debt maturing in 2025, 2027, 2029, 2030, 2033 and 2039 were not offered to retail. The bonds are callable at par in 2023.
Wells Fargo Securities priced $125.7 million of Charlotte-Mecklenburg, N.C., Hospital Authority Healthcare System health care revenue bonds. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s.
Wells Fargo held a retail order period, pricing and repricing on Tuesday in response to strong investor demand.
Yields range from 0.27% with a 1.00% coupon in 2014 to 4.02% with a 4.00% coupon and 3.56% with a 5.00% coupon in a split maturity in 2039.
The bonds are callable at par in 2023. Yields were lowered up to 12 basis points for credits maturing at the front end of the curve, and eight basis points at the 10-year mark, from the morning’s retail pricing. Yields were not lowered during repricing.
In the secondary market, trades compiled by data provider Markit showed mostly weakening.
Yields of California 5s of 2043 and Massachusetts 5s of 2023 jumped four basis points to 3.54% and 2.00%, respectively.
Yields of California Public Works Board 5.786s of 2021 climbed three basis points to 3.55%. Yields of New York City Transitional Finance Authority 5s of 2027 rose two basis points to 2.61%.
Yields of Tobacco Settlement Financing Corp., N.J., 4.75s of 2034 fell two basis points to 5.62%.
Muni market yields closed Tuesday’s session weaker, according one market scale. They were steady through five years; beyond that, they were up to three basis points higher.
Yields on the Municipal Market Data triple-A GO scale finished higher beyond the front end of the curve Tuesday. The 10-year yield climbed two basis points to 1.83%. The 30-year yield rose three basis points 2.98%. The two-year held steady at 0.28%
The Municipal Market Advisors 5% scale also showed yields rising Tuesday. The 10-year and 30-year yields each moved up three basis points to 1.89% and 3.10%, respectively, on the day. The two-year yield held steady at 0.33% for a fourth consecutive session.
Treasury yields started Tuesday stronger across the curve, yet weakened by the early afternoon, reversing their gains. The benchmark 10-year yield rose three basis points from Monday’s close to 1.96%.
The 30-year yield jumped four basis points to 3.17%. The two-year yield inched up one basis point to 0.26%.