As the stock market continues to fall, yields in the municipal and Treasury market have plummeted and traders expect this trend to continue throughout the day. This may be bad news for investors hoping to pick up yield, but good news for bulk of issuers coming to market, like DASNY. Below, what you need to know to attack the day.
Primary
- The Dormitory Authority of the State of New York — often referred to as DASNY — will open up its two-pronged offering of state sales tax revenue bonds to institutional investors Wednesday. The deal consists of $963.5 million of tax-exempt serial and term bonds in Series 2014A and $36.5 million of federally taxable bonds serial bonds in Series 2014B. Bank of America Merrill Lynch will senior-manage the negotiated deal with Jefferies and Ramirez & Co. The bonds are rated Aa1 by Moody's Investors Service and AAA by Standard & Poor's, and proceeds will finance capital projects.
Traders expect the deal to be priced aggressively after a successful retail order period on Tuesday. The institutional order period is likely to attract "buy and hold" purchasers and bonds are not expected to be liquid in secondary markets after issuance, said a Midwest-based trader. If traders want a bite of this deal, they'll need to jump into the primary order period. - South Carolina Public Service Authority will issue $550 million of Santee Cooper revenue obligation bonds in a negotiated deal scheduled for pricing on Wednesday by B of A Merrill and Barclays Capital. Rated A1 by Moody's, AA-minus by Standard & Poor's, and AA-plus by Fitch Ratings, the bonds will come to market in two series — $520 million of tax-exempt refunding bonds structured as serials and term bonds in Series C and $30 million of taxable refunding bonds structured as serial bonds in Series D.
This issuer's mere location will help it pick up interest from yield-hungry investors, said a New York based trader. The Southeast has been particularly absent from primary offerings, making this debt popular and likely aggressively priced. - In the competitive market, Washington will issue two series of general obligation bonds on Wednesday totaling $765.2 million: $526.6 million and $238.6 million, both rated Aa1 by Moody's and AA-plus by the two other major rating agencies.
- A $253.97 million sale of revenue debt from the California State Public Works Board is planned for pricing on Thursday by Barclays Capital Inc., following a retail order period on Wednesday. The three-pronged offering is rated A1 by Moody's and A-minus by the other two major rating agencies and is comprised of $110.3 million of lease revenue bonds to finance Department of Corrections and Rehabilitation projects at various correctional facilities; $78.41 million of lease revenue bonds to finance various capital projects, and $65.25 million of lease revenue refunding bonds to refund debt on behalf of the Department of Corrections' Pleasant Valley State Prison project.
- Hamilton County, Ohio, is slated to issue $213.71 million of sewer system refunding revenue bonds on behalf of the Metropolitan Sewer District of Greater Cincinnati. The two-pronged sale, to be priced by Morgan Stanley & Co., consists of $159.97 million in Series 2014 A maturing serially from 2017 to 2031 and a yet to be determined term bond, as well as $53.74 million in Series 2015 A maturing from 2015 to 2019. The bonds are rated Aa2 by Moody's and AA-plus by Standard & Poor's.
Secondary
In anticipation of the DASNY deal, two large New York issuers — the city of New York and the Port Authority of New York and New Jersey — led secondary trading volume lists, according to data collected by Municipal Securities Rulemaking Board's disclosure website EMMA.
- The city's general obligation's 0.04% variable rate bonds saw $31.8 million of bonds traded after dominant trading since June 30.
- The Port Authority's 5s of 2044 tightened to 3.43% in round lot trading on Wednesday morning, down from 3.54% the day prior. Nearly $30 million bonds were traded in morning sessions.
Scales
The Municipal Market Data's triple-A 5% curve continued tightening through Wednesday morning, most dramatically in the long end of the curve as traders said investors were "giving up hope" of yield in the near term future. Bond maturing between 2022 and 2044 slid seven to 12 basis points, while those maturing between 2019 and 2021 fell three to seven basis points. Bond maturing from 2015 through 2018 fell up to four basis points.
Treasuries
Treasuries made a splash on Wednesday morning as the 10-year fell below 2%, indicating to investors an intensified "flight to quality" as the stock market retracted some of its 2014 gains. By 10:30 a.m., the two-year had fallen 10 basis points to yield 0.29% compared to Tuesday's market close. The 10-year floated up to 2.06%, a 15 basis point drop from Tuesday, and the 30-year fell 11 basis points to 2.84%.
