The week’s largest issuers borrowed in the tax-exempt market Wednesday as Puerto Rico Electric Power Authority led the way with the Commonwealth’s first deal in 2013.
In a test of investor appetite, South Carolina Public Service Authority, Washington State, and New York’s Metropolitan Transportation Authority alsotapped the market.
Garnering the most interest was $673.1 million of PREPA power revenue bonds priced by Morgan Stanley. The bonds are rated Baa3 by Moody’s Investors Service, BBB by Standard & Poor’s, and BBB-minus by Fitch Ratings.
In repricing, the bonds yielded 6.73% with a 7.25% coupon in 2030, 7% priced at par in 2033, 7.02% with a 6.75% coupon in 2036, 7.07% with a 7% coupon in 2040, and 7.12% with a 7% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered as much as three basis points from preliminary pricing.
“It’s been a while since a yield that large has come across the screen,” a Virginia trader said. “It’s turning some heads.” This trader saidsome Puerto Rico credits were weakening as a result of the deal in the secondary market, but that it wasn’t dragging down high grade municipals. “There was some concern given the size of the deal and pricing at eye-popping levels that it would do more damage to the market and we’re not seeing that.”
Other said Puerto Rico bonds were weaker Tuesday ahead of the sale, and showed signs of stabilizing Wednesday. “Several Puerto Rico names traded cheaper Tuesday in anticipation of the PREPA deal today, including Puerto Rico Commonwealth, Puerto Rico Sales Tax Financing Corp., and older PREPAs,” said analysts at Interactive Data. “Some of these names reversed course Wednesday with trades higher than prior levels as PR trading recovered slightly.”
Thepositive reception for Puerto Rico didn’t carry through to the whole market. “The only deal we participated in was PREPA. We dipped our toe in the water hoping that we’re close to the bottom,” a Boston trader said. “Munis continue to be extremely cheap but the bleeding will only stop when the redemptions stop. We need some positive news to bring retail back into the market.”
In another big deal, Washington auctioned $867.2 million of general obligation bonds in three pricings, rated Aa1 by Moody’s and AA-plus by Standard & Poor’s. The pricing consists of $536.4 million, $275.1 million, and $55.7 million.
JPMorgan won the bid for the first pricing of $536.4 million of Washington various purpose GOs. Yields ranged from 1.16% with a 5% coupon in 2017 to 4.53% with a 5% coupon in 2038. The bonds are callable at par in 2023.
Spreads to the Municipal Market Data scale ranged from 15 basis points to 35 basis points. The triple-A to double-A MMD spread ranged from 15 basis points to 30 basis points for the same maturities.
JPMorgan won the bid for the second pricing of $275.1 million of Washington motor vehicle fuel tax GOs. Yields ranged from 0.18% with a 2% coupon in 2014 to 4.53% with a 5% coupon in 2038. The bonds are callable at par in 2023.
Spreads to the MMD scale ranged from four basis points to 35 basis points, similar to triple-A to double-A MMD spread that ranged from four basis points to 30 basis points for same maturities.
Details for the third pricing of $55.7 million were not available by press time.
“The longer-end seems more attractive,” the Virginia trader said, referring the bonds maturing beyond 10 years in the Washington pricing. “There are some left over bonds in the front end but they are having more success on the long end.”
In other deals, Citi priced $219.6 million of Pennsylvania Turnpike Commission turnpike revenue bonds, rated A1 by Moody’s and A-plus by Standard & Poor’s and Fitch.
Yields ranged from 1.04% with a 3% coupon in 2016 to 5.18% with a 5% coupon in 2043. The bonds are callable at par in 2023.
Citi won the bid for $197.4 million of MTA dedicated tax fund refunding bonds, rated AA by Standard & Poor’s and AA-minus by Fitch.
Yields on the first series of $97.4 million of refunding bonds ranged from 0.20% with a 2% coupon in 2013 to 4.59% with a 4.5% coupon in 2034. The bonds are callable at par in 2023.
Yields on the second series of $100 million of refunding bonds ranged from 1.26% with a 4% coupon in 2017 to 3.56% with a 5% coupon in 2025. The bonds are callable at par in 2023.
In the secondary market, munis ended steady to slightly weaker. “The bid is holding up well in the larger pieces I see trading,” the Virginia trader said. “We have a list out of higher quality and there is a lot of participation. Maybe it’s a slightly weaker bias, but in general it’s steady.”
Trades compiled by data provider Markit showed mostly weakening.
Yields on California’s Golden State Tobacco Securitization Corp. 5s of 2045 and Massachusetts Department of Transportation 5s of 2035 increased four basis points each to 5.29% and 4.47%, respectively.
Yields on Maryland’s Washington Suburban Sanitation District 5s of 2021 rose three basis points to 2.31% and Oregon 5s of 2025 rose two basis points to 3.30%.
Wednesday, yields on the Municipal Market Data scale ended as much as one basis point higher. The 10-year and 30-year yields were flat at 2.73% and 4.28%, respectively. The two-year finished flat at 0.43% for the 16th consecutive session.
Yields on the Municipal Market Advisors scale were flat to one basis point lower. The 10-year and 30-year yields were steady at 2.90% and 4.34%, respectively. The two-year yield fell one basis point to 0.54%.
Treasuries posted gains Wednesday. The benchmark 10-year yield slid four basis points to 2.60% and the 30-year yield dropped five basis points to 3.68%. The two-year yield fell one basis point to 0.31%.
