Municipal bonds steadied along with Treasuries Wednesday afternoon, after yields on 10-year government bonds jumped to the highest in about two weeks earlier in the day.
Muni bonds up to six years held their ground, though yields on bonds from seven years and out climbed as much as three basis points, according to the Municipal Markets Data triple-A scale. Yields for the two-year held steady at 0.41%, according to the Municipal Market Advisors data, and the 10-year rose by two basis point to 2.55%. The 30-year also grew by two basis points to 4%.
"Munis are a tad weaker, but we're definitely outperforming Treasuries," a trader based in New York said in an interview. "It got a little overdone on the front end, to say the least."
Yields on the 10-year Treasury benchmark rose to 2.80%, the highest level since March 19. The 10-year yield has gained 90 basis points from 1.86% a year ago, though yields are below the average 3.46% over the past decade, according to MMD data.
Federal Reserve Board chair Janet Yellen told a conference in Chicago Monday that the Fed's "extraordinary commitment" to help the United States recover from the Great Recession will be needed for "some time to come," easing concern over rising rates.
"Yellen's speech led to an unwind of curve-flattening bets, triggering an outperformance of short-term rates and an underperformance of long-term rates as accounts closed out their positions," Janney's Guy Lebas said in a report Tuesday.
An improving economy tends to raise investors' concern that the Federal Reserve will raise interest rates. "A lot of guys aren't going to make any big bets before unemployment comes out on Friday," the New York trader said.
This week's issuance, slated at $4.19 billion, is down from last week's $4.78 billion and is heavy with higher education deals, one of which was priced Tuesday.
RBC Capital Markets brought a four-part deal totaling $250.7 million for the San Jose-Evergreen Community College District of Santa Clara, Calif.
Yields on $31.6 million of general obligation bonds ranged from 0.323% with a 2% coupon in 2015 to 3.60% with a 5% coupon in 2032. Yields on $120 million of GOs ranged from 0.22% with a 2% coupon in 2015 to 4.24% with a 4.125% coupon in 2043. Yields on $50.9 million of GOs ranged from 2.11% with a 2% coupon in 2021 to 3.35% with a 5% coupon in 2029. The three bond series are callable at par in 2024.
Yields on $48.3 million of refunding bonds ranged from 0.17% with a 1% coupon in 2014 to 1.46% with a 5% coupon in 2019. The series are not callable. The deal received an Aa1 rating from Moody's Investors Service and a AA from Standard & Poor's.
The University of California Regents two-part $968.24 million general revenue bond sale is scheduled to come to market Thursday, with a $559.49 million tax-exempt portion to be priced for retail and the $408.75 million taxable portion accepting indications of interest.
"You got the big Cal deal in the market, but that's really it," the New York trader said. "They're going to price those bonds to go; the new-issue market has been priced cheaper than the secondary for a while now."
The bonds are rated Aa2 by Moody's and AA by S&P. Wells Fargo Securities is managing underwriter for the tax-exempts and Goldman, Sachs & Co. is lead underwriter for the taxable bonds. Goldman brought $264.38 million of general obligation dedicated unlimited ad-valorem property tax bonds to the market Wednesday for the San Diego Unified School District, after a retail order period Tuesday.
The $15.09 million portion had yields ranging from 0.10% with a 1% coupon in 2014 to 0.43% with a 5% coupon in 2016. They have no call option. Yields for the $50 million segment ranged from 5.18% in 2031 to 5.58% in 2038.
The $199.29 series' yields ranged from 0.18% with a 2% coupon in 2015 to 3.39% at a 5% coupon in 2029. All parts of the deal are callable at par in 2024 and is rated Aa3 by Moody's and AA-minus by S&P.
Flint, Mich., and Genesee County came to market with the first borrowing for the Karegnondi Water Authority, which was launched in 2010 by several local governments in southeast Michigan. Genesee County is 60 miles outside Detroit.
JP. Morgan Securities priced $220.5 million Karegnondi Water Authority of Genesee, Lapeer and Sanilac counties in Michigan water supply bonds late Tuesday afternoon, with yields ranging from 1.46% with a 3% coupon in 2017 to 4.89% at a 5% coupon in 2043. The interest rate is well below Karegnondi Water Authority's budgetary goal, the agency said in a press release.
"I would like to thank the financing team for all of their hard work and efforts during the bond process," Jeff Wright, chief executive officer of the Karegnondi Water Authority, was quoted as saying.
The funds from the bond sale will be used to move forward with the construction of the KWA pipeline, as well as for pump stations and other parts of the project. The bonds, which feature an optional par call in 2023, carry A2 and A-plus ratings from Moody's and S&P, respectively.
In the competitive market, Bank of America Merrill Lynch won the bid for $120 million of Lincoln Public School District, Neb., GOs, with a TIC of 3.8125%. The deal is rated AA1 by Moody's and AAA by S&P.
Reporter Caitlin Devitt contributed to this column.
