Top-shelf municipal bonds closed weaker on Tuesday as yields were as many as three basis points higher on some maturities on the front end of the curve, according to traders, as a flurry of deals priced in the primary market.
Primary Market
Despite inclement weather across the Northeast, it was business as usual in the primary market, as all of the larger negotiated deals that were scheduled to price came to market as planned.
"I would say liquidity is hampered a little bit from people waiting for the [Federal Open Market Committee's announcement on interest rates Wednesday] and also due to firms on the eastern seaboard being half staffed," said one New York trader. "I think no one is trying to do a whole lot and I don't think anyone would have changed even if everyone was fully staffed today."
The trader also said that people have been waiting on the sidelines and that it has paid off.
"Every day or two they wait, the market gets cheaper," he said.
In the negotiated sector, RBC Capital Markets priced the Ohio Water Development Authority's $400 million of state water pollution control loan fund revenue bonds on Tuesday. The bonds were priced to yield from 2.62% with a 5% coupon in 2026 to 3.03% with a 5% coupon in 2031. The deal is rated triple-A by Moody's Investors Service and S&P Global Ratings.
At first glance, some might be surprised at the pricing of the triple-A rated paper, as it is yielding more than U.S. Treasuries but at a deeper dive it makes sense.
"Ohio Waters priced into a slightly weaker market and even though they are triple-A rated, they typically trade around plus-12 through plus-16 basis points to the Municipal Market Data scale in the longer serial range (10-plus years)," said Greg Saulnier, muni research analyst at MMD. "Add to that the usual negotiated concession plus accounts reluctant to step for bonds ahead of the FOMC and you get the wider spreads."
Saulnier also added that he expects those to snap back towards plus-15 basis points later in the week if demand picks up post Fed announcement.
"Texas triple-A paper is trading around plus-17 or 18 basis points," the trader said. "That is where the market is right now."
Since 2007, the OWDA has sold about $5.22 billion of bonds, with the largest issuance coming in 2010 when it offered $1.49 billion, the only time in that period when it issued more than $1 billion. OWDA issued less than $300 million in five of those years.
Bank of America Merrill Lynch priced the county of Hamilton, Ohio's $307.01 million of hospital facilities revenue bonds for Trihealth Inc. Obligated Group Project, slightly higher than the originally scheduled $296 million. The bonds were priced to yield from 1.12% with a 3% coupon in 2018 to 4.30% with a 4.125% coupon in 2038. A term bond was priced as 5s to yield 4.06%. A term bond in 2047 was priced in a split maturity to yield 4.11% with a 5% coupon and 4.39% with a 4.25% coupon. The deal is rated A-plus by S&P and Fitch Ratings.
Citigroup priced the California Health Facilities Financing Authority's $292.435 million of revenue bonds for El Camino Hospital. The bonds were priced to yield from 1.55% with a 5% coupon in 2020 to 3.92% with a 5% coupon in 2037. A term bond in 2042 was priced to yield 4.15% with a 4% coupon and 3.96% with a 5% coupon in a split maturity. A term bond in 2047 was priced to yield 4.25% with a 4.125% coupon and 4.01% with a 5% coupon in a split maturity. The deal is rated A1 by Moody's and A-plus by S&P.
BAML also priced the city of Chesapeake, Va.'s $101.84 million of GO improvement and refunding bonds on Tuesday, although it was original scheduled to for $201 million.
The $75.97 million of GO public improvement and refunding bonds were priced to yield from 0.80% with a 4% coupon in 2017 to 2.86% with a 5% coupon in 2030. The bonds were also priced to yield from 3.02% with a 5% coupon in 2032 to 3.51% with a 4% coupon in 2036.
The $5.86 million of GO bonds for South Norfolk Tax Increment Financing were priced to yield from 0.80% with a 3% coupon in 2017 to 3.66% with a 3.50% coupon in 2036.
The $20.005 million of GO water and sewer refunding bonds were priced to yield from 1.68% with a 4% coupon in 2021 to 2.46% with a 5% coupon in 2025. The deal is rated Aa1 by Moody's and triple-A by S&P and Fitch.
On Monday five competitive sales planned for the Empire State Development Corp. Tuesday were delayed until Thursday.
Also, the two competitive sales totaling roughly $285 million from Boulder Valley School District No. RE-2, Colo. have been postponed until Thursday.
There are no large scheduled deals for Wednesday, due to the Federal Open Market Committee meeting and the probability that it will announce an increase in interest rates.
Secondary Market
The 10-year benchmark muni general obligation yield was steady from 2.49% on Monday, while the yield on the 30-year GO was unchanged at 3.25%, according to a final read of MMD's triple-A scale.
U.S. Treasuries were mixed at Tuesday's market close. The yield on the two-year Treasury inched up to 1.38% from 1.37% on Monday, while the 10-year Treasury yield was lower to 2.59% from 2.61%, and the yield on the 30-year Treasury bond decreased to 3.17% from 3.19%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $1.46 billion to $9.57 billion on Wednesday. The total is comprised of $5.34 billion of competitive sales and $4.23 billion of negotiated deals.
