Municipal bond traders on Wednesday were looking at an active day as the last of the big sales are coming to market, including a deal from Energy Northwest and a sale from an infrequent issuer of general obligation bonds – the state of New Jersey.
Traders are expecting a quiet trading day on Thursday ahead of the full market close on Friday.
Secondary Trading
U.S. Treasuries were narrowly mixed on Wednesday. The yield on the two-year Treasury dropped to 0.88% from 0.89% on Tuesday, while the 10-year Treasury yield was flat at 1.93% and the 30-year Treasury bond yield slipped to 2.71% from 2.72%.
Top-rated municipal bonds were steady to slightly stronger Tuesday. The yield on the 10-year benchmark muni general obligation was unchanged from 1.84% on Monday, while the 30-year muni yield fell two basis points to 2.78% from 2.80%, 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 95.2% compared with 95.8% on Monday, while the 30-year muni to Treasury ratio stood at 102.3% versus 102.6%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 38,651 trades on Tuesday on volume of $10.19 billion.
Primary Market
Bank of America Merrill Lynch is set to price Energy Northwest’s $497 million deal on Wednesday. The issue is comprised of Series 2016A Project 1 electric revenue refunding bonds, Series 2016A Columbia Generating Station electric revenue refunding bonds, Series 2016A Project 3 electric revenue refunding bonds, Series 2016B Project 1 taxable electric revenue refunding bonds, Series 2016B Columbia Generating Station taxable electric revenue refunding bonds, and Series 2016B Project 3 taxable electric revenue refunding bonds.
The issue is rated Aa1 by Moody’s Investors Service, AA-minus by Standard & Poor’s and AA by Fitch Ratings.
Citigroup is set to price the state of New Jersey’s $140 million of general obligation refunding bonds. The deal is rated A2 by Moody’s and A by S&P and Fitch. Late Tuesday, S&P revised its outlook on New Jersey's GOs to negative from stable while affirming the A rating on the state’s GOs.
The state has not been in the market with GOs since 2014 when it competitively sold $525 million of various purpose GOs. Bank of America Merrill Lynch won those bonds with a true interest cost of 3.32%. That deal had a top yield of 3.73% in 2035. The bonds at that time were rated A1 by Moody’s and A by S&P and Fitch.
Janney Municipal Strategist Alan Schankel said a GO sale is relatively rare for the Garden State, “since the vast majority of state borrowing uses appropriation-backed bonds.”
He cited pension funding as a big minus facing the state.
“Underlying the state’s fiscal challenges and structural imbalance are poorly funded pensions, with the funded ratio dropping to 37.5% as of July 1, 2015, from 42.5% in the prior year,” he wrote in a Wednesday market comment. “New Jersey is among the wealthiest of states, but its recovery has lagged with 2014 GDP growth of only 0.4% compared to 2.2% for the country as a whole.”
RBC Capital Markets is expected to price the Wisconsin Housing and Economic Development Authority’s $180 million of Series 2016A AMT and Series 2016B non-AMT homeownership revenue bonds. The issue is rated Aa2 by Moody’s and AA by S&P.
Since 2006, the Wisconsin HEDA has sold about $2.25 billion of debt. The biggest sale came in 2006 when the authority sold $678 million of bonds and the lowest issuance occurred in 2011 when it issued $9 million of debt.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar fell $2.72 billion to $6.34 billion on Wednesday. The total is comprised of $2.34 billion of competitive sales and $3.99 billion of negotiated deals.
