Top-rated municipal bond prices ended slightly higher on Tuesday, according to traders, as words from Federal Reserve Chair Janet Yellen soothed nervous bond investors.
Yellen told the U.S. Senate Banking Committee that the Fed is patient now about deciding on when to raise interest rates. She added, however, that stance will not always be the case. Yellen was testifying on the first day of a two-day appearance before Congress to deliver the Fed's semi-annual economic report. She will speak before a U.S. House panel on Wednesday.
Meanwhile, the municipal primary heated up as over $2 billion of supply hit the market on Tuesday, with traders saying there was good demand for the new issues.
Primary Market
In the negotiated sector, Wells Fargo Securities priced the New York City Transitional Finance Authority's $700.5 million of tax-exempt fixed-rate refunding bonds for retail investors.
The TFA's $655.84 million future tax secured tax-exempt subordinate bonds, Fiscal 2015 Series C, were priced to yield from 0.70% with a 4% coupon in 2017 to 3.25% with a 3.25% coupon in 2031; a 2016 maturity was offered as a sealed bid. The $44.66 million future tax secured tax-exempt subordinate bonds, Fiscal 2015 Series D, were priced to yield from 0.70% in 2017 with a 4% coupon to 2.71% with a 4% coupon in 2027; the 2015 and 2016 maturities were offered as sealed bids. The bonds, which will be priced for institutions on Wednesday, are rated Aa1 by Moody's Investors Service and triple-A by Standard & Poor's and Fitch Ratings.
JPMorgan Securities priced the Pennsylvania Economic Development Finance Authority's $719.765 million of tax-exempt private activity revenue bonds for the Pennsylvania Rapid Bridge Replacement project. The bonds were priced to yield from 1.70% with a 4% coupon in 2018 to 3.82% with a 5% coupon in 2030; a 2034 term bond was priced as 5s to yield 3.92%; a split 2038 term was priced as 4 1/8s to yield 4.30% and as 5s to yield 3.99%; and a 2042 term was priced as 5s to yield 4.03%. The issue is rated triple-B by S&P.
Raymond James & Associates priced Hamden, Conn.'s $125 million of taxable general obligation bonds. The GOs were priced from a spread of 145 basis points over the comparable Treasury in 2016 to 225 basis points over Treasuries in 2025, 235 basis points over Treasuries in 2030 and 2035, and 275 basis points over Treasuries in 2044. The issue is rated Baa1 by Moody's, A-plus by S&P and triple-B-plus by Fitch except for the 2021, 2035 and 2044 maturities, which were insured by Build America Mutual and rated AA by S&P.
In the competitive arena, two separate offerings from the Clark County School District, Nev., totaling $398.405 million were sold on Tuesday. Both issues are rated A1 by Moody's and AA-minus by S&P.
Bank of America Merrill Lynch won the school district's $266.640 million Series A limited tax GO refunding bonds with a true interest cost of 1.0513%. The bonds were priced to yield from 0.40% with a 5% coupon in 2016 to 1.30% with a 5% coupon in 2019.
Citigroup Global Markets won the school district's $131.765 million Series B limited tax GO refunding bonds with a TIC of 1.5637%. The bonds were priced to yield from 0.40% with a 5% coupon in 2016 to 2% with a 5% coupon in 2022.
Bank of America Merrill Lynch won the Grand Prairie Independent School District, Texas' $130.005 million of unlimited tax refunding bonds with a TIC of 3.2215%. The issue was priced to yield from 0.40% with a 5% coupon in 2016 to 3.37% with a 4% coupon in 2037. The bonds, which are backed by the Permanent School Fund Guarantee Program, are rated triple-A by S&P and Fitch.
Wells Fargo won Mecklenburg County, N.C.'s $100 million of unlimited tax GO school bonds, Series 2015A with a TIC of 2.6262%. The bonds were priced to yield from 0.15% with a 5% coupon in 2016 to 3.35% with a 3.25% coupon in 2035. The issue is rated triple-A by Moody's and S&P.
"The Mecklenburg deal did pretty well," said one trader. "There was good demand for all the bonds in the 15- to 18-year range; those cleaned up right away. The 19- to 25-year range is where some balances were left, but overall I think there were only $25 million left out of a $100 million issue, so that's not bad at all."
Secondary Market
Prices of top-quality municipal bonds inched up on Tuesday.
The yield on the 10-year benchmark muni general obligation was down one basis point to 2.07% on Tuesday from 2.08% on Monday, while the yield on 30-year GO was off one basis point to 2.87% from 2.88%, according to the final read of Municipal Market Data's triple-A scale. The yields on the 10- and 30-year have remained at these levels since Feb. 18.
Since the start of the month, yields have been on the upswing after falling to near record lows in January. Since Feb. 1, yields on the 10-year year are up by 33 basis points while yields on the 30-year are up by 37 basis points. However, since Jan. 1, yields on the 10-year are up only six basis points and yields on the 30-year are up by only four basis points.
Treasury prices moved higher on Tuesday. The yield on the two-year Treasury note dropped to 0.56% from 0.61% on Monday while the 10-year yield declined to 1.98% from 2.06% and the 30-year yield decreased to 2.60% from 2.66%.
The 10-year muni to Treasury ratio was calculated at 104.3% versus 101.0% on Monday, while the 30-year muni to Treasury ratio stood at 110.6% compared to 108.3%.
