Investors will grab the longest maturity in the $394.4 million New York City Water Finance Authority water and sewer system second general resolution revenue bonds now that the yield on those bonds has been raised, traders predict.
On Wednesday when the bonds were available for retail order, a trader in New York said that retail would not be interested in the 2045 maturity, and it would have to carry a lot of yield to attract institutional investors. He pointed out issuing a bond with a maturity longer than 30 years is mainly beneficial for the issuer because it can lock in the current low interest rates, even if it does provide buyers with a bit of yield.
A trader in the Midwest said the NYC Water likely raised the yields to ensure institutional investors would buy the bonds.
"It's especially crucial for them to price it right today because of the other large deals coming to market," he said. "If the yield is the main attraction factor, well, there are going to be a lot of taxable bonds in the primary today that also carry yield."
The two largest deals in the primary on Thursday the $1.2 billion California general obligation bond auction and the $1 billion Hawaii GO sale both have taxable portions.
A second trader in New York said he imagined the underwriters of the NYC Water deal ran the retail order period and got a small amount of orders during the period, and raised the yields to make sure they would get business from institutional investors.
"[The deal team] had to make a price adjustment for the bonds to be in line with the market," he said.
Traders said the fact NYC Municipal Water Finance Authority water and sewer system second general resolution revenue 4s in 2045 are one of the most actively traded Cusips in the secondary according to EMMA indicated the choice to raise yields was the right one.
They said the high trading activity on those bonds likely means investors are trying to exit that trade and buy the 5s in 2045 or the 4s in 2045 currently up for grabs in the primary.
The 4s in 2045 that are trading in the secondary are trading between a high yield of 3.92% and a low yield of 3.48%, meaning their price ranged from 100.631 to 104.186.
The second trader in New York said this price seemed high for that maturity, especially if there are more attractively priced bonds with the same maturity from the same issuer available in the primary.
The 5s in 2045 in the primary were priced with a yield of 3.57% or 111.503, and the 4s in 2045 were priced at 100.75.
Yields on the newly issued NYC Water bonds ranged from 2.82% with a 5% coupon in 2028 to 3.57% with a 5% coupon in 2045.
The bonds have an optional call in 2024, and earned ratings of Aa2 from Moody's Investors Service and AA-plus from Standard & Poor's and Fitch Ratings.
Ramirez & Co. was the managing underwriters on the deal.
Primary
The $205.4 million Hospitals Authority of Hall County and the City of Gainesville revenue anticipation certificates issued for the northeast Georgia Health System Project were priced with yields from 4.30% with a 4% coupon in 2046 to 4.07% with a 5.50% coupon in 2054.
The bonds can be called at par in 2025 and Bank of America Merrill Lynch is the lead underwriter.
The bonds were rated AA-minus by S&P and Fitch.
The $764.1 million New Jersey Transportation Trust Fund Authority transportation program bonds had yields from 1.23% with a 5% coupon in 2017 to 4.08% with a 5.25% coupon in 2044.
The bonds can be called in 2024 and are rated A2 by Moody's and A-minus by S&P and Fitch.
The tax-exempt $784.7 million Hawaii GOs entered their institutional sale with yields on the $575 million GO part ranging from 1.25% with a 3% coupon in 2019 to 3.15% with a 5% coupon in 2034.
Yields were raised on the 5s in 2033 maturity by five basis points to 3.10% from the bonds' retail order period Wednesday, and were lowered by 10 basis points on the 4s in 2034 maturity by 10 basis points.
The $209.7 million GO refunding bonds' yields ranged from 1.25% with a 5% coupon in 2019 to 2.68% with a 5% coupon in 2026.
Yields on the 2025 and 2026 maturities were raised two basis points to 2.58% and the 2.68%, respectively.
All the bonds can be called at par in 2024, and are rated Aa2 by Moody's and AA by S&P and Fitch.
Scales
Municipal bonds held steady across the curve on Thursday, according to Municipal Market Data's triple-A scale.
Treasuries strengthened with the two-year note yield falling by two basis points to 0.53%, the 10-year yield dropped by one basis point to 2.36%, and the 30-year by one basis point to 3.08%.
