The New York City two-part general obligation deal was increased to $1.02 billion from $850 million during its institutional sale on Wednesday.
Yields on the bonds also rose, increasing on the $918.5 million and $102.2 million parts of the deal from three to seven basis points.
"We did increase the deal pretty significantly," Alan Anders, deputy director for finance at the mayor's Office of Management and Budget, said in an interview. "The deal grew up throughout the day as the orders amounted to $1.02 billion."
The yields had already been raised by two basis points on all maturities on the second day of retail sale. The deal was upsized this morning to $953.67 million, and yields had increased by from two basis points to seven basis points in the intermediate maturities for the larger part of the issuance, and from two to six basis points for the section segment.
"We actually increased the yields in three early maturities, in 2017, 18, and 19 by 1, two and one basis points from where they were priced this morning, and then we reduced yields in 2030 to 2034," Anders said. "The demand was slightly less in some of the early maturities, and then was strong throughout."
Yields for the first part of the deal ranged from 0.14% on a 2% coupon in 2015 to 3.87% with a 3.75% coupon in 2034. Yields for the second portion ranged from 0.10% with a 2% coupon in 2014, to 2.52% with a 5% coupon in 2022.
The city last issued $650 million GOs in March 6, with yields ranging from 0.25% with a 2% coupon in 2016 to 4.35% with a 4% coupon in 2039.
Yields on the Wednesday GO sale ranged between 10 and 71 basis points over the comparable MMD triple-A scale for maturities two years and longer, compared with a range of 12 to 78 basis points for the city's March 6 issuance. One-year yields for both deals were priced even with the MMD triple-A curve. Investors had expressed some concern about New York City bonds after a contract was reached with the United Federation of Teachers, which will provide an 18% wage increase over the course of nine years, in return for more than $1 billion in healthcare cost savings over the next four years.
"The city has and continues to enjoy a very good reception; it is not surprising there is a little bit of noise out there as we've just ended a 12 year administration that steered the city since 9/11," Dan Heimowitz, managing director at RBC, said in an interview.
In the $850 million GO deal's preliminary official statement the city elaborated on its plans for the $1 billion in healthcare cost savings.
"The Financial Plan funding for the net cost of all of the elements of the Tentative Agreement as applied to the entire municipal workforce (including the UFT as described above) is $1.96 billion, $43 million, $1.92 billion, $1.92 billion and $3.3 billion in fiscal years 2014 through 2018, respectively, for a total net cost of $9.16 billion," the statement said. "Such net amounts reflect the offsets from the release of $1 billion of reserves from the health stabilization fund in fiscal year 2015 and health insurance savings of $400 million, $700 million, $1.0 billion and $1.3 billion in fiscal years 2015 through 2018, respectively, which have been approved by the Municipal Labor Committee."
The statement said the city can enforce such health insurance savings through a binding arbitration process.
"There is always some next short term issue, and certainly the contracts are large, but I think the contracts or working towards settling contracts is a positive [for the city's credit rating]," Heimowitz said.
Barclays Capital wrote in a June 6 report that new information about the deal with the UFT reduces the risk surrounding how the city would achieve its planned healthcare savings.
"We wanted to stress, that these yields the key to look to is the max yield in the 20th year 3.87, comparing that to the 20th maturity in the last several deals," Anders said. "The last three deals of the Bloomberg administration by comparison in the 20th maturity were 4.45% in December 2012, 4.28% in September 2013, and 4.63% in July 2013."
The first part of the issuance has an optional par call in 2024. The second section has no optional call.
Moody's Investors Service rated the bonds Aa2 and Standard & Poor's and Fitch Ratings gave them AA ratings.
Anders said yields had been increased during the bonds' second day of retail to follow the Municipal Market Data curve, which showed bonds were selling off slightly. On Wednesday yields continued to rise in parts of the curve increasing by up to two basis points for bonds maturing in five years, and by one basis point for bonds maturing in six years, according to MMD's AAA scale.
Yields rose by two basis points for bonds maturing in five years, and by one basis point for bonds maturing in six years, according to MMD. They held steady through the rest of the curve.
Anders said the decision to raise yields on the NYC GOs during their institutional sale is unrelated to the MMD curve.
"It's a tough market and you have to make adjustments because of adjustments with the MMD, and the deal was probably upsized to make accommodations to the market," a trader in New York said.
Bank of America Merrill Lynch priced $277.6 million of California Health Facilities Financing Authority Providence Health and services bonds.
Yields ranged from 0.18% with a 2% coupon in 2015 to 3.76% with a 5% coupon in 2038. The bonds are callable at par in 2024.The deal is rated Aa3 by Moody's and AA by Fitch.
BMO Capital Markets priced $191.3 million of Wyandotte County, Kan., Unified Government board of public utilities improvement and refunding revenue bonds. Yields ranged from 0.60% with a 4% coupon in 2016 to 4.20% with a 5% coupon in 2044.
There is a sealed bid in 2015. The bonds are callable at par in 2024. The bonds mature serially from 2014 to 2034 with term bonds in 2039 and 2044. The deal is rated A3 by Moody's and A-plus by both S&P and Fitch.
Treasuries were mixed Wednesday, with the 10-year benchmark falling one basis point to 2.65% and the two-year note rising one basis point to 0.43%. The 30-year yield was unchanged at 3.47% from Tuesday's market close.
