Prices of top-rated municipal bonds finished stronger on Tuesday, traders said, as yields on some maturities weakened by as much as five basis points. China's surprise currency devaluation caused a flight-to-quality move into U.S. Treasuries pushing up bonds while pulling down stocks.
The yield on the 10-year benchmark muni general obligation on Tuesday fell five basis points to 2.18% from 2.23% on Monday, while the yield on the 30-year GO was off five basis points to 3.06% from 3.11%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were higher on Tuesday, with the yield on the two-year Treasury note declining to 0.67% from 0.73% on Monday, while the 10-year yield dropped to 2.14% from 2.23% and the 30-year yield decreased to 2.81% from 2.90%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 99.4% versus 99.7% on Monday, while the 30-year muni to Treasury ratio stood at 108.4% compared to 107.2%, according to MMD.
In late equities trading, the Down Jones Industrial Average declined about 215 points, while the Nasdaq dropped almost 75 and the S&P 500 more than 20. Oil prices also declined, with crude for September delivery falling $1.77 a barrel to $43.19, a nearly six-year low.
Primary Market
The first deals of the week's $5 billion of new supply came to market on Tuesday.
Wells Fargo Securities priced all of the Municipal Electric Authority of Georgia's $254.7 million of Series 2015A Plant Vogtle Units 3&4 $184.41 million of Project J and $70.29 million of P revenue bonds with a 45-year maturity date.
The Project J bonds were priced in a split 2060 maturity to yield 4.58% with a 5% coupon and to yield 4.33% with a 5.50% coupon. The Project P bonds were also priced as a split 2060 maturity to yield 4.91% with a 5% coupon and to yield 4.66% with a 5.50% coupon.
The MEAG's Project J bonds were rated A2 by Moody's Investors Service and A-plus by Standard and Poor's and Fitch Ratings; the Project P bonds were rated Baa2 by Moody's and A-minus by S&P and Fitch.
Cabrera Capital Markets priced the Harris County Metropolitan Transit Authority, Texas' $115.52 million deal.
The $52.62 million of Series 2015A sales and use tax bonds were priced as 5s to yield 1.06% in 2018, 1.29% in 2019 and 1.59% in 2020. The $62.9 million of Series 2015B sales and use tax contractual obligation bonds were priced as 5s to yield from 0.80% in 2017 to 2.77% in 2027; the 2016 maturity was offered as a sealed bid.
The deal was rated Aa2 by Moody's and AA-plus by S&P.
Morgan Stanley priced the New Jersey Educational facilities Authority's $117.7 million of Series 2015H revenue bonds for Kean University. The issue was priced to yield from 0.75% with a 1% coupon in 2016 to 3.90% with a 3.75% coupon in 2030. A 2033 maturity was priced as 4s to yield 4.03%, a 2034 maturity was priced as 5s to yield 3.66%, a 2035 maturity was priced as 5s to yield 3.70% and a 2039 maturity was priced as 4s to yield 4.10%.
The 2016 through 2022 maturities were rated A2 by Moody's and A-minus by S&P; the 2023 through 2039 maturities were insured by Assured Guaranty Municipal and rated A2 by Moody's and AA by S&P.
The biggest deal of the week is a $1 billion pension bond offering from the Kansas Development Finance Authority expected to be priced on Wednesday by Bank of America Merrill Lynch. The deal consists of Series 2015H taxable revenue bonds. The issue is rated Aa3 by Moody's and AA-minus by S&P.
Since 1995, the KDFA has issued roughly $9.52 billion of debt, with the highest years of issuance occurring in 2004 and 2010 when the authority issued $929 million and $878 million, respectively. The KDFA saw low years of issuance in 1995 and 1999, when they issued just $58 million and $126 million, respectively.
CUSIP Data Indicate Muni Issuance Slowdown
The volume of requests for new municipal CUSIP identifiers fell for the third month in a row, according to a report released on Tuesday by CUSIP Global Services.
The report, which tracks issuance of new security identifiers as an early indicator of debt market activity, suggests a possible slowdown in new municipal bond issuance in the next few weeks.
CUSIP requests dropped 19% last month, with a total of 1,233 new identifier requests made in July, according to the report. This follows a 1% decrease in June and a 3% decline in May.
On a year-over-year basis, however, requests are up by 36%, reflecting the heavy activity in the municipal market during the first half of 2015.
Texas, New York and California issuers accounted for the highest volume of new requests in July, accounting for 35% of all municipal bond activity during the month.
"The most interesting trend we're seeing in the CUSIP issuance data is the downward trajectory of new municipal bond volume for the third consecutive month," Gerard Faulkner, director of operations for CUSIP Global Services, said in a press release. "While, on a year-over-year basis, we're still seeing growth overall, we are definitely seeing a clear signal that the tide is starting to turn for municipal bond issuance."
MSRB Previous Session's Activity
Trading was extremely light on Monday. The Municipal Securities Rulemaking Board reported 33,041 trades on Monday on volume of $3.895 billion.
"MSRB volume [on Monday] was the lowest of the year, excepting the Friday after New Year's Day," according to Alan Schankel, Municipal Strategist at Janney.
