Institutional buyers will not be deterred by low yields on Missouri Highway and Transportation Commission's $920.3 million refunding bonds, according to market participants.
The deal was priced for retail by Bank of America Merrill Lynch on Monday with yields for the $599.3 million section of the two-part issuance ranging from 0.60% with a 3% coupon in 2017 to 2.45% with a 5% coupon in 2026. Investors believe the bonds will see demand during institutional sale, beginning Tuesday.
"It is rich, but appropriately priced," a trader in New York said. "It should receive broad demand from institutional investors."
Yields on $320.9 million of second lien refunding bonds ranged from 0.93% with a 3% coupon in 2018 to 2.37% with a 3% coupon in 2025.
The deal size was increased from the $894.5 million originally scheduled. Both parts of the deal are callable at par in 2024. The deal is not yet rated.
A trader in Florida called the Missouri Highway issuance one of the "highlighted" deals of the week.
"It will receive a lot of attention," he said. "It is front-end loaded but it is a credit that I think many accounts are under invested in, so I think it will do well."
"Clearly the revenue types of bonds Missouri Highway is issuing are in demand, so the deal should be okay tomorrow," the trader in New York said. "It's also a name you don't see very often, it's not a New York sewer or a California GO."
The trader also said market fundamentals will allow the deal to come in on the richer side. Many deals have been increased in size because of the low supply.
An indication of interest was released Monday for $157.8 million of federally taxable University of Massachusetts Building Authority refunding revenue bonds. Maturities on the bonds ranged from 2014 to 2025, with a sealed bid in 2014. Spreads vs. Treasury ranged from +20 in 2015 to +95 in 2025. The deal features a make whole call.
Ramirez & Co. is the lead underwriter. The deal is rated Aa2 by Moody's Investors Service, AA-minus by Standard and Poor's and AA by Fitch Ratings.
The largest deals in the competitive market this week will be auctioned Wednesday: $200 million of Massachusetts GOs and $200 million of tax anticipation notes for Fulton, County, Ga.
Treasuries yields were mixed Monday afternoon, with the two-year note falling three basis points to 0.35% and the 30-year inching up one basis point to 3.35%. The 10-year benchmark was unchanged at 2.52% from Friday's market close.
