Municipal bond prices finished unchanged to firmer on Monday, traders said, ahead of Tuesday's $750 million bond sale by the Puerto Rico Aqueduct and Sewer Authority and Wednesday's $245 million bond offering from the city of Detroit.
Secondary Trading
The yield on the 10-year benchmark muni general obligation on Monday was unchanged from 2.20% on Friday, while the yield on the 30-year GO dropped one basis point to 3.06% from 3.07%, according to the final read of Municipal Market Data's triple-A scale. Secondary muni trading was light, according to Interactive Data.
Treasury prices were higher on Monday, with the yield on the two-year Treasury note dropping to 0.71% from 0.73% on Friday, while the 10-year yield declined to 2.15% from 2.19% and the 30-year yield decreased to 2.80% from 2.84%.
The 10-year muni to Treasury ratio was calculated on Monday at 102.2% versus 100.3% on Friday, while the 30-year muni to Treasury ratio stood at 109.1% compared to 108.1%, according to MMD.
Primary Market
Municipal bond volume for sale this week consists of about $5.3 billion of negotiated deals and around $1.2 billion of competitive sales.
Bank of America Merrill Lynch is slated to price PRASA's $750 million of Series 2015A senior lien revenue bonds on Tuesday. The issue is rated Caa3 by Moody's Investors Service, CCC-minus by Standard & Poor's and CC by Fitch Ratings.
PRASA's speculative-grade bond sale will be the first from a Puerto Rico public sector agency since the March 2014 Puerto Rico general obligation bond sale. Since then, Puerto Rico Gov. Alejandro García Padilla has declared the commonwealth's debt to be unpayable given the commonwealth's current levels of economic growth, and the Puerto Rico Public Finance Corp. defaulted on 99% of a $58 million debt payment due Aug. 1.
PRASA said it expects to pay about 10% on the Series 2015 A senior lien bonds, which is 1.4 percentage point more than the secondary market yield on its senior bonds maturing in 30 years. The authority's pricing will be led by BAML with JPMorgan, Popular Securities, and Santander Securities as junior underwriters.
On Monday, the PRASA Series 2012A senior lien revenue 5 1/4s of 2042 were trading at a low price of 64.53 cents on the dollar, or a high yield of 8.676%, in four trades totaling $2.83 million, according to the Municipal Securities Rulemaking Board's EMMA website. This compared to a low price of 65.52 cents on the dollar, or high yield of 8.542%, in 32 trades totaling $5 million on Friday. The bonds were initially priced on Jan. 29, 2012 at 97.474. No PRASA bonds were on EMMA's most actively traded list on Monday.
Also attracting a lot of interest this week is Detroit's first post-bankruptcy bond sale.
Scheduled for sale on Wednesday, Barclays Capital will price the $245 million of local government loan program revenue bonds, which are being issued through the Michigan Finance Authority.
The deal consists of Series 2014F 1 and 2 bonds consisting of $134.73 million tax-exempts and $110.28 million of taxables. The issue is being converted from variable-rate bonds owned by Barclays to fixed-rate current interest bonds.
According to the investor roadshow, proceeds will be used to "refund $120 million debtor-in-possession/quality of life financing; finance reinvestment and revitalization incentive projects in the city; pay all or a portion of the city's obligations with respect to certain classes of claims; fund a debt service reserve account; and pay costs of issuance."
The documents add that "on the conversion date, [Sept. 1] the city will retire $30 million of the taxable portion of the original December 2014 transaction, reducing its borrowing to $245 million from $275 million."
The bonds are enhanced with a statutory lien and intercept feature on Detroit's income tax, which will pay off the bonds. The protections, combined with debt-service coverage levels of 6.5 times, helped the deal win an A rating from S&P.
Barclays is also set to price the Illinois Finance Authority's $400 million of Series 2015A revenue bonds for the University of Chicago on Wednesday. The issue is rated Aa2 by Moody's, AA by S&P and AA-plus by Fitch.
Also this week, Goldman, Sachs is slated to price the New York Metropolitan Transportation Authority's $398 million of Series 2015D transportation revenue refunding bonds. A retail order period is being held on Wednesday ahead of the institutional pricing on Thursday.
Citigroup is expected to price the New York Convention Center Development Corp.'s $650 million of refunding revenue hotel unit fee secured bonds on Wednesday. The issue is rated A1 by Moody's and A-plus by S&P.
Citi is also set to price the Hillsborough County, Fla., Aviation Authority's $386 million of tax-exempt and taxable airport revenue bonds for the Tampa International Airport on Tuesday. The bonds are rated A3 by Moody's and A-minus by S&P and Fitch.
And Citi is slated to price the Massachusetts Development Finance Agency's $290 million of tax-exempt and taxable revenue bonds on Thursday. The issue is rated A3 by Moody's and A-minus by S&P.
In the competitive arena on Tuesday, Portland, Ore., will sell $341.53 million of Series 2015A first lien sewer system revenue refunding bonds and $62.39 million of Series 2015B second lien sewer system revenue refunding bonds The Series 2015A bonds are rated Aa2 by Moody's and AA by S&P while the Series 2015B bonds are rated Aa3 by Moody's and AA-minus by S&P.
Prior Week's Actively Traded Issues by Sector
Revenue bonds comprised 54.81% of new issuance in the week ended Aug. 14, up from 54.57% in the previous week, according to Markit. General obligation bonds comprised 36.95% of total issuance, up from 36.56%, while taxable bonds made up 8.24%, down from 8.87%.
Some of the most actively traded issues during the week were in New York, Puerto Rico and Kansas, according to Markit.
In the revenue bond sector, the New York State Dormitory non-state supported debt 4s of 2036 were traded 61 times. In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 were traded 32 times. And in the taxable bond sector, the Kansas Development Financing Authority revenue 4.727s of 2037 were traded 33 times, Markit said.
