The Washington Airport Authority's $430 million issuance was priced with yields 10 basis points lower than planned as municipal bonds rallied with Treasuries.
JPMorgan Securities priced the deal with yields at 4.40% with a 5% coupon maturing in 2053.
"The deal was oversubscribed and yields were lowered by 10 basis points," a trader in New York said.
The deal is $20 million smaller than the $450 million that was planned. The bonds are callable at par in 2022 and it is rated Baa1 by Moody's Investors Service and BBB-plus by Standard & Poor's.
"They did the deal at lower yields because it was oversubscribed," a trader in Pennsylvania said, adding that the deal probably was downsized because the amount issuers choose to bring to market is usually a calculation of how much they need.
Municipal bonds rallied on Wednesday with yields dropping by as much as 7 basis points for longer maturities. Yields dipped one basis point for bonds maturing in three years, by two basis points for four-year maturities, and by three basis points for five-year maturities, according to Municipal Market Data's triple-A scale.
Yields declined by four basis points for six- to nine-year maturities, by five basis points for 10- to 12-year bonds, by six basis points for 13- to 21-year bonds, and by seven basis points for bonds maturing in 22 to 30 years.
Municipal Market Advisors reported that yields for the two-year held steady at 0.35%, that they fell by three basis points for the 10-year to 2.23%, and by six basis points to 3.46% for the 30-year.
"We're seeing a lot of strength in the market, there's a lot of money chasing too few bonds," a trader in Dallas said.
A trader in Chicago said that the market was rallying on the heels of a weak retail price report on that was released on Tuesday. The report showed retail sales for April increased by 0.1%, below analysts' predictions of 0.4%.
"We took note of the retail sales, those were really soft numbers," he said. "There was a bit of a flight to quality with treasuries rallying and MMD rallying."
The trader in Pennsylvania said the municipal market's strength is partially due to strength in the treasury market. Treasury yields fell on Wednesday with the two-year note dropping by one basis point to 0.38%, the 10-year falling by five basis points to 2.55% and the 30-year declining by seven basis points to 3.37%.
The trader said that the Washington Airport Authority deal is the first of many airport issuances coming soon.
"There are a bunch of airport deals that have been waiting in the wings to come," he said. "They are in the planning stages. This is the first of them to come to market."
The Pennsylvania trader said that one that stands out to him in particular is a San Francisco Airport deal expect to hit the market in oncoming weeks which he believes will receive heavy demand.
"The market has certain preferences and with California's high-income tax, San Francisco Airport is doing a deal soon, I would think it will do well," he said.
In a report released on May 9, Janney Capital Markets said the airport and airline sectors have stabilized. Airports experienced fiscal troubles in the years following the Sept. 11 terrorist attacks and the economic crisis.
"From a peak of 835 million enplanements at U.S. airports in 2007, passenger traffic fell by 8% in the next two years," Janney wrote in the report. But the situation has been improving and if the 515 airports with Federal Aviation Administration towers are considered, airport traffic has risen to just below its 2007 peak, the report says.
"The most recent Federal Aviation Administration Forecast projects that enplanements at the top 29 airports will grow at a 2% annual rate over the next five years and at a 1.9% annual rate through 2040," Janney wrote in the report.
A Barclays Capital report released on May 5 noted that the Dallas/Fort-Worth International Airport bonds maturing in 2042 were the ninth most actively traded tax-exempt CUSIPs this April, with 34 trades and a 107 basis point spread.
"Municipal bond investors should consider owning airport bonds as a portion (5% to 10%) of a diversified municipal bond portfolio," Janney wrote in its report.
Janney does warn that individual airline finances are less certain. "High exposure to single airlines or large amounts of connecting traffic can interject a degree of uncertainty into airport finances," the report said.
Trading on bonds from the commonwealth of Puerto Rico plummeted, as yields from its March $3.5 billion general obligation issuance rose to levels seen in April.
Commonwealth of Puerto Rico bonds are trading 57.66% below its 100-day average on Wednesday, according to data provided by Bloomberg.
"The Puerto Rico economy does not look great right now, they might have to give a tender to their bondholders, like what Jefferson County did," a second trader in New York said, referring to the Alabama county that emerged from bankruptcy protection last year.
Yields on the benchmark 8% GO of 2035 moved up to 9.15%. The benchmark GO's yields have remained above 9% all week, levels they hadn't reached since the end of last month.
Yields began increasing Monday after Puerto Rico reported its corporate tax collection for April came in 26% below projections.
Before the report, yields on the benchmark bonds had been falling, spurred by a speech Puerto Rico Governor Alejandro Garcia Padilla gave on April 29, in which he promised to balance the budget by fiscal 2015.
"For us, Puerto Rico trades like an equity now," the trader in Chicago said. "It reacts to news. It is price sensitive to news that comes out, and you don't see that a lot in the municipal market. Whenever there's a headline, that GO, the super GO reacts."
