Multitude of deals price, as tax reform talk continues to pressure market

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A busy week got started Tuesday, with deals flowing in as the specter of tax reform plagues the primary municipal market and issuers rush to market with sales that may no longer be allowed next year, creating an opportunity for buyers.

“December borrowing is on track to grow as bankers and issuers push to beat the year-end deadline potentially imposed by Congressional tax reform proposals,” said Alan Schankel, managing director and municipal strategist at Janney. “Eclipsing the monthly volume record of $54.7 billion set in December 1985 (when issuers were rushing to beat a deadline ahead of the Tax Reform Act of 1986) is a reach, but given the current pace, a $45 billion month in December, which would be the busiest of 2017, is possible.”

Elevated new issuance has put pressure on yields, he continued. As the forward calendar has grown, municipal to Treasury ratios, a key relative value measure, moved higher.

“If Congressional tax reform (particularly the House version) is successful and future tax-exempt supply is diminished, supply/demand dynamics will likely push tax free yields lower relative to taxable yields in the new year, as tax free bonds outperform taxable alternatives,” he said. “If tax reform fizzles or is substantially delayed, next year’s anticipated supply will be as expected before tax reform proposals placed the tax exemption of certain classes of municipal bond in play. In either case, demand for tax exempt bonds should remain solid since current tax proposals retain the top bracket rate (39.6% House) or reduce it only marginally (38.6% Senate).”

Bank of America Merrill Lynch brought to market the Pennsylvania Higher Educational Facilities Authority’s $400 million of Series 2017A health system revenue bonds for the University of Pennsylvania Health System. The bonds were priced to yield from 2.60% with a 5% coupon in 2027 to 3.21% with a 5% coupon in 2037. The bonds were also priced to yield 3.68% with a 4% coupon and 3.29% with a 5% coupon in a split 2042 maturity and 3.34% with a 5% coupon in 2047.

BAML also priced the Trustees of the University of Pennsylvania’s $200 million of taxable health system bonds for the Pennsylvania Health System. The taxable bonds were priced at par to yield 4% in a 2047 bullet maturity, about 125 basis points above the comparable Treasury. The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings.

RBC Capital Markets priced Wisconsin’s $368.595 million of Series 2017 2 transportation revenue refunding bonds. The bonds were priced to yield from 1.66% with a 5% coupon in 2021 to 2.69% with a 5% coupon in 2032. The advance refunding deal is rated Aa2 by Moody’s and AA-plus by S&P and Fitch and AAA by Kroll Bond Rating Agency.

Since 2007, the Badger State has issued over $20 billion of bonds. Prior to this year, the most issuance occurred in 2009 when Wisconsin sold $2.39 billion of bonds. The state issued the least amount of debt in 2007 when it sold $1.14 billion.

RBC priced for retail on Tuesday the New York State Environmental Facilities Corp.’s $323.55 million of Series 2017E state clean water and drinking water revolving funds revenue bonds for New York City Municipal Water Finance Authority projects. The bonds were priced for retail to yield from 1.22% with a 3% coupon in 2018 to 2.84% with a 5% coupon in 2038. A term bond in 2047 was priced to yield 2.94% with a 5% coupon. No retail was available in the 2033 through 2035 or 2042 maturities. The subordinated SRF bonds will be priced for institutions on Wednesday and are rated triple-A by Moody’s, S&P and Fitch.

Barclays Capital priced the Board of Regents of the University of Texas System’s $258.76 million of Series 2017C revenue financing system refunding bonds. The deal was priced to yield from 1.30% with a 3% coupon in 2018 to 3.28% with a 3% coupon in 2035. The deal is rated triple-A by Moody’s, S&P and Fitch.

Secondary market
Top-rated municipals were weaker on Tuesday around lunchtime. The yield on the 10-year benchmark muni general obligation was between two and four basis points higher from 2.12% on Monday, while the 30-year GO yield increased between one and three basis points from 2.79%, according to a read of Municipal Market Data’s triple-A scale.

U.S. Treasuries were mostly stronger on Tuesday around midday. The yield on the two-year Treasury was steady at 1.74%, the 10-year Treasury yield fell to 2.31% from 2.32% and the yield on the 30-year Treasury dropped to 2.75% from 2.77%.

On Monday, the 10-year muni-to-Treasury ratio was calculated at 91.1% compared with 89.0% on Friday, while the 30-year muni-to-Treasury ratio stood at 101.0% versus 100.0%, according to MMD.

MBIS 10-year muni at 2.403%, 30-year at 2.891%
The MBIS municipal non-callable 5% GO benchmark scale was weaker around midday on Tuesday.

The 10-year muni benchmark yield rose to 2.403% on Tuesday from the final read of 2.380% on Monday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The MBIS 30-year benchmark muni yield increased to 2.891% from 2.877% on Monday.

The AP-MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 39,332 trades on Monday on volume of $8.099 billion.

Bond Buyer reports 30-day visible supply
The Bond Buyer's 30-day visible supply calendar increased $1.68 billion to $18.50 billion on Tuesday. The total is comprised of $6.34 billion of competitive sales and $12.16 billion of negotiated deals.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Primary bond market Tax reform Secondary bond market Pennsylvania Higher Educational Facilities Authority State of Wisconsin New York State Environmental Facilities Corporation The University of Texas Board of Regents Trustees of the University of Pennsylvania