The municipal bond market saw more than $2 billion of competitive new issues on Tuesday led by offerings from Pennsylvania, Virginia, Wisconsin and California.
Prices of top-rated municipal bonds were substantially weaker, traders said, with some yields up by as much as nine basis points at the close.
Primary Market
Pennsylvania sold $1 billion of unlimited tax general obligation bonds. Bank of America Merrill Lynch won the issue with a true interest cost of 2.9915%.
The bonds were priced to yield from 0.22% with a 5% coupon in 2016 to 3.35% with a 4% coupon in 2035. The issue is rated Aa3 by Moody's Investors Service and AA-minus by both Standard & Poor's and Fitch Ratings.
Pricing spreads on the deal were historically wide, Greg Saulnier, Research Analyst at Municipal Market Data said in a report. He cited the 5s of 2020, which were reoffered at 1.25%, or 27 basis points above the implied MMD curve, while the 5s at 2.26% in 2025 were 51 basis points over the implied curve.
"Spreads settled at +50 basis points for 5s in 2029 and longer, included at 2.77% in 2033," Saulnier said. "For comparison, Pennsylvania GOs have been trading in the secondary of late around +35/+40 basis points in 10-years and longer."
Since 1995, the Keystone state has issued almost $24 billion of general obligation bonds, with the largest sales occurring in 2004 and 2010 when more than $2 billion of GOs were issued in each of those years.
"The big Pennsylvania deal went pretty well," said a New York trader. "There were not a whole lot of balances there."
Some traders said talk on the street indicated the deal was well received.
"The deal did pretty decently," another New York trader said. "It had a nice kick to it, with how it was structured."
Elsewhere in the competitive arena, the Virginia Public School Authority sold $435.715 million of school financing refunding bonds. Citigroup Global Markets won the issue with a TIC of 2.1859%. The bonds were priced to yield from 0.18% with a 3% coupon in 2015 to 3.05% with a 3% coupon in 2035; a 2037 term bond was priced as 3s to yield 3.08%. The bonds are rated Aa1 by Moody's and AA-plus by both S&P and Fitch.
Also, Wisconsin sold $274.62 million of unlimited tax general obligation bonds. Jefferies won the issue with a TIC of 3.1278%. The bonds were priced to yield from 1.24% with a 5% coupon in 2021 to 2.51% with a 5% coupon in 2035. The issue is rated Aa2 by Moody's and AA by both S&P and Fitch.
Additionally, Citigroup won the Long Beach Unified School District, Calif.'s $180 million of Election of 2008 Series D GOs with a TIC of 3.5861%. The bonds were priced to yield from 0.08% in 2015 to 0.47% with a 4% coupon in 2017 and to yield 3.10% with a 4% coupon in 2040 to 3.23% with a 4% coupon in 2043. The issue is rated Aa2 by Moody's and AA-minus by S&P.
Secondary Market
Prices of top-quality municipal bonds finished the day sharply lower along with Treasuries.
The yield on the muni 10-year benchmark general obligation rose six basis points to 1.80% from 1.74% on Monday, while the yield on 30-year GOs was up nine basis points to 2.59% from 2.50%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were also lower. The two-year note yield rose to 0.50% from 0.48% on Monday; the 10-year yield increased to 1.77% from 1.67%, while the 30-year yield jumped to 2.36% from 2.24%.
The 10-year muni to Treasury ratio decreased to 101.1% on Tuesday from 104.2% on Monday, while the 30-year muni to Treasury ratio declined to 109.3% from 111.1%.
MSRB Reports Previous Session's Activity
The Municipal Securities Rulemaking Board reported 28,587 trades on Monday on volume of $6.352 billion. Most active on Monday, based on the number of trades, was the Pennsylvania 2013 state first service bond 5s of 2025, which traded 133 times with an average price of 122.214 and an average yield of 2.03%.
