Municipal bond traders' attention Wednesday will be riveted on big deals coming to market from Chicago and Pennsylvania.
Primary Market
Chicago will offer $645 of fixed-rate bonds to convert $800 million, with the remaining funds needed to redeem the floating-rate paper coming from its short term borrowing program. The city will offer $172 million from its $200 million 2002 issue, $169 million from its $180 million 2003 issue, $162 million from its $222 million 2005 issue, and $143 million from its $200 million 2007 issue.
All will include a mix of serial and term bonds with the respective final maturities in 2037, 2034, 2040, and 2042, according to an investor presentation posted late Friday with the deal's offering statements. The city will make a total of $200 million in swap termination payments due to negative valuations on derivatives tied to the bonds.
Bank of America Merrill Lynch will be running the books with Citi, Ramirez, and Siebert Brandford Shank as co-senior managers. Another eight firms round out the syndicate on the transaction. Columbia Capital Management is advising the city.
The sale comes on the heels of the city's downgrade to Ba1 with a negative outlook from Moody's Investors Service over the challenges posed to city pension reforms by a state Supreme Court ruling voiding state pension changes.
Fitch Ratings and Standard & Poor's also downgraded the city, to BBB-plus and A-minus, respectively, within investment grade territory, citing liquidity risks posed by the Moody's downgrade. Kroll Bond Rating Agency affirmed the city's A-minus rating and stable outlook.
Chicago bonds currently trade at about 300 basis points over the MMD's triple-A scale. In contrast, the state of Illinois GOs (A3/A-minus/A-minus) trade around 170 to 185 basis points over the MMD scale.
Pennsylvania will competitively sell $1.23 billion of general obligation bonds, consisting of $460 million of second Series of 2015 and $770.23 million of first refunding Series of 2015. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Fitch Ratings.
On Tuesday, the Pennsylvania Series 2015-1 GO 5s of 2020 were yielding 1.92% compared to 1.95% in the previous session, according to Markit.
"Pennsylvania is widely viewed as another in the growing list of states which has a large unfunded pension liability and its spread in the market has grown during the past 12 months," Municipal Market Data Senior Strategist Daniel Berger writes in a Wednesday comment. "In the 10-year range, this spread is 50 basis points [over the MMD scale] versus its 12-month average of 33.2 basis points [over the MMD scale]."
The Keystone State last sold bonds competitively on Feb. 3 when Bank of America Merrill Lynch won $1 billion of first series of 2015 GOs with a true interest cost of 2.99%.
Also on Wednesday, Morgan Stanley is expected to price the San Mateo County Community College District, Calif.'s $127 million of GOs.
Other deals on the calendar include the St. Paul Housing and Redevelopment Authority's $494 million of health care facilities revenue refunding bonds to be priced by Piper Jaffray on Thursday; the Miami-Dade County School Board's $461 million of certificates of participation to be priced by Citi on Thursday; the Montgomery County Industrial Development Authority, Pa.'s $455 million of health system revenue bonds to be priced by Bank of America Merrill Lynch on Thursday; and the Massachusetts Educational Financing Authority's $185 million of revenue bonds to be priced by Morgan Stanley on Thursday.
Secondary Market
Treasury prices were lower on Wednesday as the yield on the two-year Treasury note rose to 0.65% from 0.61% from Tuesday, while the 10-year yield increased to 2.15% from 2.13% and the 30-year yield increased to 2.90% from 2.89%.
The yield on the 10-year benchmark muni general obligation on Tuesday fell five basis points to 2.25% from 2.30% on Friday, while the yield on the 30-year GO was down five basis points to 3.23% from 3.28%, according to the final read of Municipal Market Data's triple-A scale.
The 10-year muni to Treasury ratio was calculated on Tuesday at 105.3% versus 103.5% on Friday, while the 30-year muni to Treasury ratio stood at 111.6% compared to 109.6%, according to MMD.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $27.2 million to $13.33 billion on Wednesday. The total is comprised of $6.95 billion competitive sales and $6.38 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 43,170 trades on Tuesday on volume of $8.102 billion.
The most active bond, based on the number of trades, was the Riverside County Public Financing Authority, Calif.'s Series 2015 capital facilities project lease revenue bonds 4 1/8s of 2040, which traded 155 times at an average price of 100.027 with an average yield of 4.107%. The bonds were initially priced at 97.308 to yield 4.30%.
Yvette Shields contributed to this report
