NEW YORK – Municipal bonds continue to weaken in afternoon trading as the market absorbs a range of deals.
The softer tone was attributed less to new supply than to a broad sell-off in Treasuries owing to the Greek parliament accepting a five-year austerity plan.
Tax-exempts maturing between 2016 and 2021 are seeing yields climb three to five basis points, while longer-term yields are one to three basis points higher and short-term yields are flat to two basis points higher, according to Municipal Market Data.
“Trading activity was fairly active out of the chute this morning and has reflected a flattening yield curve, with the 5-10 year range being the most actively quoted for high-grade names,” wrote MMD analyst Casey Logan.
As with Monday and Tuesday, the sell-off appears mild next to the broad sell-off in Treasuries. There, the 10-year yield is up eight basis points at 3.12% and the 30-year yield is three basis points higher at 4.36%.
“The weak performance in the Treasury market isn't giving the tax-exempt sector much incentive,” Logan said.
In the new-issue market, the Citizens Property Insurance Corp. in Florida priced $900 million of coastal account senior secured bonds through Citi. The deal is rated A2 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.
The complex deal includes short-term notes, serial bonds, and SIFMA floating-rate notes.
The notes, for $105 million, mature in June 2012 and were sold with a 0.65% yield on a 2% coupon.
The serial bonds mature between 2015 and 2020, with yields ranging from 3.08% to 4.75%. Assured Guaranty Municipal wrapped a portion of debt for each year; insured yields ranged from 2.83% to 4.50%.
Finally, $150 million of floating rates notes – all of which were wrapped by Assured – mature in 2011 and offer 165 basis points above the SIFMA rate.
A pricing wire for Puerto Rico’s first new-money general obligation debt offering in nearly three years hit the wires early morning, but a source at underwriter JPMorgan said the entire deal was sold Tuesday.
The debt was scheduled to be sold over two days, but appetite for the $305 million deal was so robust that the territory moved the institutional pricing forward and even added $298 million of refunding debt to the deal. That too cleared Tuesday, as the deal received more than $1 billion of orders.
“We saw that we had a strong retail-order book,” said Jose Otero-Freiria, executive vice president for finance at the Government Development Bank for Puerto Rico. “We also were anticipating potentially some volatility in the markets due to a vote on the austerity plan in Greece, so we decided that we would have institutional pricing on Tuesday.”
The sale shows investors are ready and willing to step down the credit curve when a good deal presents itself. The territory is rated A3 by Moody’s, BBB by Standard & Poor’s, and BBB-plus by Fitch.
The yield on new-money public improvement bonds maturing in 2041 was 5.95% -- a spread of 127 basis points versus the triple-A scale. The entire deal was sold to institutional investors, according to Otero-Freiria.
Two prongs of refunding debt were offered to a mix of retail and institutional buyers with yields ranging from 1.80% in 2013 to 5.83% in 2034. The 2013 yield compares with a 0.42% yield on the triple-A scale.
Puerto Rico bonds offer a triple-whammy tax-exemption for city, state, and federal taxes for investors across the U.S.
Assured wrapped parts of the refunding debt maturing in 2019 and 2020. Insured yields were 3.875% in 2019, versus a naked yield of 4.25%, and 4.125% in 2020, versus a naked yield of 4.50%.
Otero-Freiria said the $52 million refunding piece generated present-value savings of more than 6%; the second refunding piece refinanced variable-rate debt into fixed-rate debt to help the commonwealth reduce roll-over risk on liquidity facilities.
Another big deal sold today was from Butler, Ohio. It sold $154.6 million of hospital facility revenue bonds through Bank of America Merrill Lynch.
Rated A2 by Moody’s and A by Standard & Poor’s, the bonds were priced to yield from 4.77% in 2023 to 5.95% in 2041.
