Prices of top-quality municipal bonds finished stronger on Wednesday, traders said, with yields on some maturities falling by as much as three basis points.
Market reaction was muted to new testimony by Federal Reserve Chair Janet Yellen, which again indicated an interest rate hike was likely this year.
In the primary, municipal bond traders saw the pricings of some hefty new issues, led by deals from California and North and South Carolina.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell one basis point to 2.32% from 2.33% on Tuesday, while the yield on the 30-year GO dropped three basis points to 2.28% from 3.31%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were higher on Wednesday, with the yield on the two-year Treasury note falling to 0.63% from 0.64% on Tuesday, while the 10-year yield fell to 2.35% from 2.40% and the 30-year yield decreased to 3.13% from 3.19%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 100.0% versus 95.6% on Monday, while the 30-year muni to Treasury ratio stood at 107.1% compared to 102.9%, according to MMD.
On Wednesday, Yellen said the central bank is on track for an interest rate increase in 2015.
"If the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target," Yellen said in testimony before the House Financial Services Committee. She said Fed officials expect growth "to strengthen over the remainder of this year and the unemployment rate to decline gradually."
This was not the first time Yellen has hinted a rate hike would come this year. Most recently, on Friday, she told an audience in Cleveland the Fed is on track to raise rates later this year.
Yellen again said on Wednesday that the timing of the first rate rise in almost a decade is less important than the rate of increases, which she said would be gradual. She said Fed forecasts for higher rates this year are projections and "not statements of intent to raise rates at any particular time."
Primary Market
Late Wednesday, Morgan Stanley set the coupons on Chicago's $742.91 million of Series 2015B taxable general obligation bonds.
The taxables were priced at par to yield from 5.383% in 2019, or 375 basis points above the comparable Treasury, to 6.361% in 2023, 400 basis points above the comparable Treasury. A 2033 term bond was priced as 7 3/8s to yield 7.45% and a 2042 term was priced as 7 3/4s to yield 7.98%. The terms were priced to the average life of the 2033 and 2042 maturities of 15.421 years and 20.787 years, respectively.
The deal will also include Series 2015A tax-exempt GOs in a transaction aimed to eliminate liquidity risks on its general fund after the May 12 loss of the city's investment-grade rating from Moody's. The sale will move short-term debt into a longer, fixed-rate term with capitalized interest for two and a half years. William Blair and Siebert Brandford Shank are co-senior managers.
The offering is rated BBB-plus by S&P and Fitch and A-minus by Kroll Bond Rating Agency.
Since 1995, Chicago has issued roughly $18.74 billion of GO debt including the upcoming issue. The years of 1999 and 2007 saw the highest issuances with $1.26 billion and $1.55 billion, respectively. The windy city did not issue any GO debt in 2013 and only sold $461 million of GOs in 1997
JPMorgan priced the California State University Trustees' $1.04 billion of revenue bonds for institutions after a one-day retail order period on Tuesday.
The Series 2015A tax-exempts were priced to yield from 0.07% with a 3% coupon in 2015 maturity to 3.47% with a 5% coupon in 2038. A 2043 split term bond was priced as 4s to yield 4.06% and as 5s to yield 3.61%; a 2047 term was priced as 5s to yield 3.68%. The issue was rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's.
Bank of America Merrill Lynch priced the North Carolina Eastern Municipal Power Agency's $419.38 million of Series 2015 taxable revenue bonds. The bonds were priced at par to yield from 1.085% in 2016 to 4.058% in 2025. The deal was rated A-minus by S&P and A by Fitch.
Wells Fargo Securities priced Charleston, S.C.'s $140.11 million of Series 2015 waterworks and sewer system capital improvement revenue bonds. The bonds were priced as 5s to yield from 1.24% in 2020 to 3.27% in 2037. Term bonds in 2040 and 2045 were priced as 5s to yield 3.37% and 3.45%, respectively. The bonds were rated triple-A by Moody's and S&P and AA-plus by Fitch.
Piper Jaffray priced the Montgomery County Independent School District, Texas' $249.66 million of Series 2015 unlimited tax school building and refunding bonds. The issue was priced to yield from 0.62% with a 3% coupon in 2017 to 3.51% with a 5% coupon in 2040; a 2045 term bond was priced as 4s to yield 4.11%. The deal is backed by the Permanent School Fund guarantee program and rated triple-A by Moody's and S&P.
BAML priced the Maryland Health and Higher Education Facilities Authority's $159.93 million of Series 2015 revenue bonds for LifeBridge Health. The issue was priced to yield from 1.21% with a 3% coupon in 2018 to 3.58% with a 5% coupon in 2030. A 2035 term bond was priced as 4s to yield 4.10%, a 2040 term was priced as 5s to yield 3.98%, and a 2047 split term was priced as 4 1/8s to yield 4.31% and as 5s to yield 4.08%. The bonds are rated A1 by Moody's and A-plus by S&P.
