The municipal bond market traded with mostly steady prices on Wednesday after cheap deals offered in the primary market earlier in the week got a strong reception in the secondary.
Traders said bids surfaced early on Wednesday as dealers looked to free up cash for the new issues. “There are lots of bids wanted. It’s either redemptions or paying for new deals,” a New York trader said. “The market feels stable though.”
Hawaii, which issued more than $800 million of bonds for institutional investors on Tuesday, was actively traded in the secondary between dealers and customers. “With Hawaii and other deals in the primary market, the trade activity is pretty strong,” a Chicago trader said.
Dealers were net sellers, with a sell ratio to customers of more than 2 to 1, making up about 50% of all trading activity. Interdealer trades accounted for 25% and customer sell trades accounted for the remaining 25% of trades.
In the primary market, one remaining large deal on the negotiated calendar priced Wednesday. Citi sold to institutions $236 million of Massachusetts federal highway grant anticipation notes for the accelerated bridge program, following a two-day retail order period. The bonds are rated Aa1 by Moody’s Investors Service, AAA by Standard & Poor’s, and AA-plus by Fitch Ratings.
In institutional pricing, yields ranged from 0.44% with 3% and 4% coupons in a split 2016 maturity to 3.49% with a 4% coupon and 3.29% with 5% coupon in a split 2027 maturity. The bonds are callable at par in 2022. Yields were lowered between three and five basis points on bonds maturing between 2016 and 2019 after being lowered as much as three basis points in retail pricing. Yields maturing beyond 2020 were raised between one and five basis points in institutional pricing.
The split triple-A and double-A-plus rated credits were priced richer than Tuesday’s triple-A Municipal Market Data scale on shorter maturing bonds, but cheaper than the scale on bonds with longer maturities.
Bonds maturing in 2018 were priced six basis points richer than the MMD scale. Bonds maturing between 2019 and 2027 had spreads ranging from one basis point to 17 basis points to the scale.
In the competitive market, Kentucky’s Louisville-Jefferson County Sewer District sold $226.3 million of short term notes, rated MIG-1 by Moody’s, SP-1-plus by Standard & Poor’s, and F-1-plus by Fitch. The district also issued $100 million of bonds in the long-term market, rated Aa3 by Moody’s, AA by Standard & Poor’s, and AA-minus by Fitch.
Wells Fargo bought $226.3 million of subordinated bond anticipation notes with a yield of 0.383% and a 2% coupon.
Bank of America Merrill Lynch won the bid for $100 million of long-term revenue bonds. Yields ranged from 0.44% with a 3% coupon in 2015 to 4.63% with a 5% coupon in 2044. The bonds are callable at par in 2023.
Also on Wednesday, Puerto Rico officials reaffirmed the progress the commonwealth has made to address its $70 billion in public service outstanding debt. Melba Acosta Febo, secretary of the Treasury of Puerto Rico, and David Chafey, chairman of the Government Development Bank, told The Bond Buyer the commonwealth is focused on raising revenue and improving economic activity.
Following a budget deficit of $2.2 billion, the commonwealth approved revenue measures of $1.7 billion and hopes to have a balanced budget by 2016. Chafey said one of the first concerns is raising revenue and while increased taxes are likely to put a dent on economic activity, he is hopeful there will be a turning point soon for positive economic growth.
Chafey and Acosta Febo said they plan to continue to be transparent with investors and talk to underwriters and bond holders about the positive changes the territory has made. Puerto Rico has challenges that need to be faced, and while it will take time, officials have started to make those decisions, Chafey said.
This comes as the commonwealth just announced net tax revenues surged 44.1% in October, though a new projection of economic growth in the fiscal year showed a 0.8% drop, higher than the previous 0.2% projection. General fund net tax revenues were $856 million in October compared to $594 million in October 2012. Gross taxes in the general fund were up 40.8% in October.
Sales and use tax revenue increased by $8.6 billion, a 9.7% increase. The government had projected a 31% increase.
Issuance of any new Puerto Rico Sales Tax Financing Corp. bonds will depend on access to the capital markets. The officials said COFINA will delay issuing between $500 million and $1.2 billion in bonds until next year if prices don’t stabilize by the end of 2013.
One CUSIP of COFINA 5.25s of 2041 traded mostly weaker Wednesday. Bonds in a block-size interdealer traded yielded 7.2%, up from 7.1% from where the bonds traded Monday.
In another block size trade, a dealer bought from a customer bonds yielding 7.22%, up from 7.1% on Monday. A dealer sold to a customer bonds yielding 7.19%, up from where the bonds were sold at 7.05% on Monday.
In the secondary market, trades compiled by data provider Markit showed mostly firming.
Yields on New York City Trust for Cultural Resources 5s of 2031 and New Jersey Turnpike Authority 5s of 2020 fell four basis points each to 3.05% and 1.96%, respectively.
Yields on Cypress-Fairbanks, Texas, Independent School District 5s of 2023 and Georgia State Road and Tollway Authority 5s of 2020 fell three basis points each to 2.59% and 1.86%, respectively.
Yields on California’s Golden State Tobacco Securitization Corp 5s of 2045 and California 5s of 2028 slid two basis points each to 5.13% and 3.95%, respectively.
On Wednesday, the triple-A Municipal Market Data scale ended steady to one basis point stronger. The 10-year and 30-year yields were steady at 2.51% and 4.11%, respectively. The two-year was steady for the seventh session at 0.34%.
Yields on the Municipal Market Advisors benchmark scale ended flat across the curve. The 10-year and 30-year yields were flat at 2.65% and 4.30%, respectively. The two-year was flat for the sixth session at 0.48%.
The Treasury yield curve steepened. The benchmark 10-year yield slid three basis points to 2.64% while the 30-year yield rose one basis point to 3.77%. The two-year was steady at 0.31%.
