Puerto Rico general obligation bonds from the commonwealth's $3.5 billion issuance are trading at their highest yield since their initial sale, although they've come off the morning's highs.
Yield on the 8% coupon bonds maturing in 2035 rose to 8.76% by closing time Monday, and remained above 8.70% into Tuesday afternoon. The move means the bonds dipped below their initial value, which came at a yield of 8.73%.
Puerto Rico had a spat of negative developments following the historic $3.5 billion sale, traders said, with some strategists reiterating the commonwealth's questionable credit profile and pointing to quick profit-taking by the initial buyers.
"In general, while we still find value in the newly issued PR GO, in our view, investors should look for better value elsewhere," Citigroup said in a report released on March 17.
The bonds were issued March 11 with a yield of 8.73% and strengthened by as much as 40 basis points upon entering secondary market trading. Non-traditional cross-over buyers who purchased the initial sale quickly took profits, market participants said, sending yields back up and erasing most of the price gains.
The draw in the bonds, some traders said, is that they remain fairly active and offer high yield to investors in a week of tepid issuance.
"Puerto Rico bonds are still being very actively traded," said a trader in California. "They are trading just below their original yield, but they do seem very active."
While the bonds aren't as actively traded as the first week following their issuance, when they comprised more than 90% of all Puerto Rico trades, they accounted for about 70% of commonwealth GO trading on Tuesday.
"My gut reaction to why they keep trading is their yield and liquidity," said the trader in California.
The Financial Industry Regulatory Authority also said it is examining whether or not brokers violated a requirement in the deal's official statement requiring $100,000 minimum purchase denominations. More than 70 trades in the secondary market were for amounts smaller than that, The Bond Buyer reported March 18.
The San Juan firm OFS Securities was also fined $40,570 last week by FINRA and ordered to pay more than $13,278 in restitution for selling the territory's bonds with excessive mark-ups in 2011.
Yields on all muni bonds maturing from 2019 to 2025 gained as much as two basis points, while longer-term bonds and short-term bonds were steady, according to Municipal Market Data's triple-A scale.
Atlanta this week will issue a three-part deal totaling $705.6 million of airport revenue refunding bonds, including $376.4 million of subordinate lien general revenue refunding bonds and $144.1 million of general revenue refunding bonds. The third series offers $185.1 million of alternative minimum tax airport general revenue refunding bonds.
"There should be a fair amount of demand for the Atlanta airport deal because it is A rated," the New York-based trader said.
Barclays Capital Inc. released a preliminary pricing wire for $484.4 million of New York City Municipal Water Finance Authority water and sewer system second general resolution revenue bonds. Yields ranged from 2.57% with a 4% coupon maturing in 2022 to 4.14% with a 5% coupon in 2039. The bonds, rated AA-minus by both Standard and Poor's and Fitch Ratings, are callable at par in 2024.
"It had a fairly aggressive retail scale yesterday," the trader in New York said
Cupertino Union School District of California issued $100 million of Bank of America-led general obligation bonds with yields ranging from 0.195% with a 2% coupon maturing in 2015 to 4.14% with a 4% coupon in 2038. The bonds, rated Aa1 by Moody's and AA-plus by S&P, are callable at par in 2024.
The Pennsylvania Turnpike Commission will issue $235.6 million of turnpike revenue bonds led by Loop Capital Markets. The bonds are rated A1 by Moody's and A-plus by both S&P and Fitch.
Bank of America Merrill Lynch won the bid for $206.1 million of Anne Arundel County, Md., general obligation bonds issued in two series. The larger portion, $126.9 million, general improvement GOs were priced with yields ranging from 0.14% with a 5% coupon maturing in 2015 to 3.86% with a 4% coupon in 2034. The bonds are callable at par in 2024.
Treasury yields strengthened Tuesday, as the 30-year and the 10-year benchmark fell two basis points each to 3.59% and 2.74%, respectfully. Two-year notes also slipped two basis points to 0.43%.
