A majority of the week’s largest new issues priced in the municipal bond market Tuesday, bringing in demand from buyers on the short-end of the curve.
Yields were lowered in repricings on bonds maturing within 10 years on the $383.6 million Miami-Dade County and Monroe County Industrial Development Corp. deals, while bonds were priced richer than the Municipal Market Data scale in the New York Empire State Development Corp. competitive market sale.
Much of the focus remained on Puerto Rico bonds after the commonwealth announced it would scale back issuance for the remainder of the year in response to yield increases.
“People are starting to dip their toe in the water but bonds are trading at 60 cents on the dollar,” said a trader located on the West Coast. “What’s the solution? Puerto Rico wants to wait until everyone figures out the economy is thriving? It’s only going to get worse. They’ve been in a recession for six years. It’s a slow moving train wreck.”
This trader added there were general obligation bonds maturing in 2027 yielding 9.84%. “That is in the 50 cents on the dollar range. How are you going to price a new issue at par? Everyone is long munis and everyone will say things are getting better, but then why is COFINA down so much?” he said, referring to the commonwealth’s sales tax bonds.
In the general market, munis still look attractive on a relative basis, the trader said, which should help support the market in the near-term. “As long as you have tightening spreads and a reduction of volatility in Treasuries, munis will hold in. It’s the volatility that kills us. So as long as volatility stays low, we can hold in there for the time being.”
Other traders said interest in the primary market helped support prices. “Buyers are just working through the new issues,” a New York trader said. “The separately managed accounts are busy today buying.” Still, this trader said there are bid lists out in the secondary market, putting some selling pressure on munis.
In the biggest competitive deals Tuesday, Bank of America Merrill Lynch won the bid for $484.5 million of New York’s Empire State Development Corp. personal income tax revenue bonds, rated AAA by Standard & Poor’s and AA by Fitch Ratings. Yields ranged from 3.40% with a 5% coupon in 2024 to 4.58% with a 5% coupon in 2033. The bonds are callable at par in 2023. Spreads ranged from 23 basis points to 40 basis points above Monday’s Municipal Market Data scale.
The issuer also sold $271.9 million of personal income tax revenue bonds to Goldman, Sachs & Co. Yields ranged from 0.38% with a 5% coupon in 2015 to 3.23% with a 5% coupon in 2023. Spreads ranged from as much as six basis points below the scale on bonds maturing between 2015 and 2017 to 24 basis points above the scale on bonds maturing between 2018 and 2023.
Also in the competitive market, Bank of America Merrill Lynch won the bid for $495 million of Arkansas general obligation four-lane highway construction and improvement bonds, rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s. Yields ranged from 0.20% with a 2% coupon in 2014 to 3.44% with a 3.5% coupon in 2033. The bonds are callable at par in 2021.
In the negotiated market, Raymond James & Associates priced for institutions $383.6 million of Miami-Dade County, Fla., seaport revenue bonds. The bonds are rated A3 by Moody’s and A by Fitch.
Yields on the first series of $244.8 million ranged from 1.74% with a 4% coupon in 2017 to 5.625% priced at par in 2042. The bonds are callable at par in 2023. Yields were lowered one and two basis points on bonds maturing between 2017 and 2022.
Yields on the second series of $109.5 million subject to the alternative minimum tax ranged from 2.10% with a 5% coupon in 2017 to 6.00% priced at par in 2042. The bonds are callable at par in 2023.
The third series of $11.9 million was offered via sealed bid.
Yields on the fourth series of $17.5 million of bonds subject to the AMT ranged from 1.55% with a 4% coupon in 2016 to 5.11% with a 6% coupon in 2026. Bonds maturing in 2014 and 2015 were offered via sealed bid. The bonds are callable at par in 2023. Yields were lowered one basis point across all maturities.
JPMorgan priced for institutions $193.9 million of Monroe County Industrial Development Corp. revenue bonds for the University of Rochester project. The bonds are rated Aa3 by Moody’s and AA-minus by Standard & Poor’s and Fitch.
Yields on the first series of $118.7 million ranged from 0.60% with a 3% coupon in 2015 to 5.07% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered between one and three basis points on bonds maturing between 2015 and 2024 from retail pricing Monday.
Yields on the second series of $75.2 million ranged from 0.33% with a 2% coupon in 2014 to 5.07% with a 5% coupon in 2043. The bonds are callable at par in 2023. Yields were lowered as much as four basis points from retail pricing Monday.
Tuesday, yields on the triple-A Municipal Market Data scale ended mostly unchanged. The 10-year and 30-year yields were steady at 2.99% and 4.48%, respectively. The two-year was steady at 0.43% for the 39th straight session.
Yields on the Municipal Market Advisors scale also ended mostly unchanged. The 10-year and 30-year yields were flat at 3.12% and 4.59%, respectively. The two-year closed unchanged at 0.55% for the 18th session.
