The Texas Transportation Commission increased the size of its general obligation mobility-fund refunding bond sale on Thursday because demand for municipals jumped as the market strengthened, according to investors.
The offering's total was raised to $944 million from $900 million as yields for benchmark municipal bonds fell as much as three basis points across the curve, according to Municipal Market Data's triple-A scale.
"The market is firming off after selling-off most of this month," a trader in New York said. "Texas is a target name right now with good credit, why not take advantage of that?"
Yields for benchmark municipal bonds declined by two basis points for bonds with five- to 18-year maturities and bonds maturing in 23 years.
Bonds with maturities from 19 to 22 years decreased by three basis points, and bonds maturing in 24 years dropped by one basis point.
The short and long ends of the yield curve remained steady.
The market started strengthening Wednesday after the summary economic projections of the Federal Open Market Committee showed rates rising quicker, if not sooner, than expected, according to the New York trader.
Bank of America Merrill Lynch priced the deal with yields ranged from 0.76% with a 4% coupon in 2017 to 3.26% with a 5% coupon in 2034.
The bonds can be called at par in 2024, and earned triple-A ratings from the three major rating agencies.
The Metropolitan Transportation Authority also took advantage of the firming muni market, according to market participants.
The authority lowered yields on its $500 million of transportation revenue bonds during institutional sale Thursday.
"The pricing probably has a lot to do with current market conditions, and yields on the MMD were falling," the trader said.
The MTA bonds' yields were lowered from three to six basis points, with bonds maturing in 12 to 15 years experiencing the sharpest decline.
A retail-order period was held for the bonds on Wednesday.
Before the bonds were priced for retail Standard & Poor's raised its rating for the New York MTA to AA-minus from A-plus.
"Retail demand was strong due in part to the S&P rating upgrade to AA-minus, which allowed a broader group of retail accounts to own MTA transportation revenue bonds," Roy Carlberg, head of underwriting at Jefferies, wrote in an email.
"After receiving $396 million orders during the retail-order period, MTA went out with aggressive levels for the institutional pricing and had lighter demand on the long maturities. MTA chose to re-amortize the loan to satisfy the retail demand."
Spreads on the bonds' institutional sale pricing to MMD's triple-A 10-year GO on July 18 ranged from 15 to 61 basis points, with a spread of 15 basis point on the two-year and the 61 basis-point spread on the 12-year.
That's tighter than the spread on the bonds' retail pricing compared to the same yield curve on July 17, which ranged from 20 basis points to 84 basis points, with 20 basis points on the 10-year and 84 on the 20-year.
The bonds earned an A2 from Moody's and an equivalent A from Fitch.
They have an optional call at par in 2024, and two sinking funds with term bonds in 2039 and 2044.
Bank of America Merrill Lynch won the bid for the largest competitive issuance scheduled to come on Thursday, the $110 million Shawnee County, Kansas, Unified School District No. 501 GO bonds.
The deal was priced with yields ranging from 1.98% with a 5% coupon in 2021 to 4.03% with a 4% coupon to 2044.
There is an optional par call in 2022, and the bonds received an Aa3 from Moody's and a AA from Fitch.
Municipal market participants said that many competitive deals are coming aggressively because underwriters are fighting for deals in the current low-issuance environment.
"All the competitive deals are coming aggressively because underwriters are fighting for a piece of the pie," a trader in New York said. "There's nothing out there these days — underwriters need to eat something."
Total municipal bond volume for the year totaled $115 billion as of May 31, compared to $153 billion for the same period in 2013, according to data provided by The Bond Buyer and Ipreo.
Issuance also fell off this week, dropping to $6.4 billion from $9.3 billion last week.
Competitive deals accounted for $26.5 billion of the year-to-date issuance, down from $34 billion to that point last year, a 22% decline.
"We sense a lot of competition among underwriting firms," a trader in Connecticut said. "Whenever there is an underwriting opportunity we as a financial advisory firm get bombarded, saying 'hey look at this.' For most new issues, the majority get done on competitive basis, and we get a number of bids on each competitive bond deal."
Yields for the two-year municipal bond held steady at 0.33%, the 10-year fell by one basis point to 2.31%, and the 30-year by one basis point to 3.52%, according to MMA data.
Treasuries weakened Thursday, with the 30-year yield climbing six basis points to 3.47% and the 10-year benchmark inching up three basis point to 2.31%.
The two-year note remained unchanged at 0.46% from the market close on Wednesday.
