Investors said the $834.5 million Pennsylvania general obligation bonds that came to the market on Tuesday, the largest deal of the week, were priced rich.
Bank of America Merrill Lynch won the bid for the two-part issuance with yields for the $545 million section ranging from 0.20% with a 5% coupon in 2015 to 3.43% with a 5% coupon in 2034. Yields on the $289.5 million of GOs ranged from 0.20% with a 5% coupon in 2015 to 2.53% with a 5% coupon in 2024.
"I think it was a little rich relative to what we consider the credit fundamentals of the state to be," a trader in Pennsylvania said. "It's a tough market this week."
There is a call option for the $545 million part of the issuance at par in 2024, but the other portion has no call feature. The deal is rated AA2 by Moody's Investors Service and AA by both Standard & Poor's and Fitch Ratings.
"We did not put in for any of the Pennsylvania issues today," a second trader in Pennsylvania said.
On Tuesday, the Associated Press reported the commonwealth's April tax collections were behind projections, with only two days left in the month. On Monday, S&P said it could downgrade Pennsylvania's rating if it did not make significant strides to balance its budget and address long-term pension liabilities, the article noted.
"The Pennsylvania deal looks pretty competitive," a trader in New York said.
A trader in Chicago said he thinks no one is looking at deals this week because it is the end of the month.
"May 1st is in a couple days, money hits accounts in a couple days," he said. "Money managers are taking meetings and seeing how they will spend that money."
The trader in New York agreed money managers waiting for cash is "absolutely" a reason why buyers are not looking at deals this week.
"You've got the perfect storm, at the end of the day you have people waiting for May 1 and people being cautious about the potential rising rate environment," he said. "This week is no fun."
J.P. Morgan Securities won the bid for $100 million of bay restoration fund revenue bonds for the Maryland Water Quality Finance Administration. Yields ranged from 0.32% with a 5% coupon in 2016 to 3.18% with a 3.50% coupon in 2029. The bonds are callable at par in 2024 and received an Aa2 rating from Moody's and an AA from S&P.
Muni yields weakened Tuesday afternoon, with yields on bonds beyond 2018 rising as much as two basis points, while those on the short end were steady.
Treasuries strengthened Tuesday afternoon, with the 30-year yields falling two basis points to 3.50% and the 10-year benchmark slipping three basis points to 2.70%. The two-year notes were unchanged from Monday's market close at 0.45%.
