Prices of top-rated municipal bonds finished stronger on Thursday, traders said, with yields on some maturities falling by as much as four basis points.
Meanwhile, the last of the week’s big offerings came to market, topped off by the New York City general obligation bond sale.
Primary Market
RBC Capital Markets priced New York City's $799.94 million of Fiscal 2015 Series C and D GOs for institutions after holding a retail order period on Tuesday and Wednesday.
For institutions, the $670.8 million Series C bonds were priced to yield from 0.74% with a 4% coupon in 2017 to 3.60% at par in 2035; a 2016 maturity was offered as a sealed bid. The $129.14 million Series D bonds were priced to yield from 0.74% with a 2% coupon in 2017 to 3.58% with a 3.50% coupon in 2034; the 2015 and 2016 maturities were offered as sealed bids.
The deal is rated Aa2 by Moody’s Investors Service and AA by Standard & Poor's and Fitch Ratings.
New York City was also active in the competitive arena, with two issues totaling $203.16 million up for bidding. Both sales were rated Aa2 by Moody’s and AA by both S&P and Fitch.
The first issue, $100 million of taxable GO Series E bonds, was won by Bank of America Merrill Lynch with a true interest cost of 2.6761%. The bonds were priced at par to yield from 0.75% in 2016 to 3.18% in 2026.
The second issue, $103.16 million of taxable GO Fiscal 2008 Series J bonds, was won by JPMorgan Securities with a TIC of 3.5931%. The bonds were priced to yield 1.66% with a 1.87% coupon in 2019, 3.42% with a 3.60% coupon in 2028 and 3.52% with a 3.70% coupon in 2029.
The last time NYC sold taxable bonds competitively was on Sept. 25, 2013 when BMO Capital Markets won $125 million Fiscal 2014 Series D Subseries D-2 taxable GOs with a true interest cost of 2.5983%
Since 2005, New York City has issued about $50 billion of GOs. The largest issuances came in 2008 and 2009 when $6.7 billion and $6.2 billion were sold, respectively. The lowest issuances occurred in 2011 and 2014, when $2.7 billion and $3 billion were sold, respectively.
Barclays Capital late Wednesday priced the University of California Regents’ $435.75 million of taxable limited project revenue bonds, Series 2015 J with Raymond James as co-manager. The bonds were priced at par to yield from 0.64% in 2016 to 4.109% in 2032; a 2045 term was priced at par to yield 4.131%. The series is rated Aa3 by Moody's and AA-minus by S&P and Fitch. Earlier on Wednesday, Barclay's priced the UC's $788.52 million of tax-exempt Series AO general revenue bonds for institutions with Stifel as co-manager after a retail order period on Tuesday. That series was rated Aa2 by Moody's and AA by S&P and Fitch.
JPMorgan priced San Francisco Public Utilities Commission’s $429.46 million of Series 2015A water revenue bonds on Thursday. The bonds were priced to yield from 1.09% with a 3% coupon in 2018 to 3.16% with a 5% coupon in 2036. The issue is rated Aa3 by Moody’s and AA-minus by S&P.
JPMorgan also priced the Sacramento Transportation Authority’s $106.1 million of Series 2015A limited tax Measure A sales tax revenue refunding bonds. The bonds were priced in a 2038 bullet maturity at par to yield 0.02%, with a note that they will bear interest at a daily or weekly rate. The issue is rated AA-plus by S&P and Fitch. The issue has a standby bond purchase agreement with Mizuho Bank that expires in 2018.
Citigroup Global Markets priced Connecticut’s $400 million of 2015 Series A tax-exempt GOs. The bonds were priced to yield from 1.07% with a 5% coupon in 2018 to 3.66% with a 3.5% coupon in 2035. The 2016 and 2017 maturities were offered as sealed bids. The bonds are rated Aa3 by Moody’s and AA by S&P, Fitch and Kroll Bond Rating Agency.
Citi also priced Connecticut’s $100 million of 2015 Series A taxable GOs. The deal was priced at par to yield from 1.422% in 2018 to 2.543% in 2021 and to yield 2.977% in 2024 and 3.127% in 2025. The bonds are rated Aa3 by Moody’s and AA by S&P, Fitch and Kroll.
Secondary Market
Prices of top-quality munis ended stronger. The yield on the 10-year benchmark muni general obligation fell four basis points to 2.14% from 2.18% on Wednesday, while the yield on 30-year GO fell four basis points to 2.94% from 2.98%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were higher on Thursday. The yield on the two-year Treasury note dropped to 0.66% from 0.68% on Wednesday, while the 10-year yield declined to 2.09% from 2.11% and the 30-year yield decreased to 2.67% from 2.68%.
The 10-year muni to Treasury ratio was calculated at 102.1% on Thursday versus 103.3% on Wednesday, while the 30-year muni to Treasury ratio stood at 109.7% compared to 111.0%.
Fed Estimates Size of Municipal Bond Market at $3.652T in Q4
The size of the municipal bond market increased in the fourth quarter of 2014, according to data released Thursday by the Federal Reserve.
The muni market now is estimated at $3.652 trillion, up from an estimated $3.631 trillion in the third quarter of last year, the Fed’s Flow of Funds Report shows. The market’s size was pegged by the Fed at $3.671 trillion in the fourth quarter of 2013.
Holdings of municipal securities by households declined in the fourth quarter to $1.540 trillion from $1.555 trillion in the third quarter of last year. In the fourth quarter of 2013, retail investors held $1.618 trillion of munis.
Holdings by mutual funds increased to $658.4 billion in the fourth quarter from $643.2 billion in the third quarter and $613.9 billion in the fourth quarter of 2013. Holdings by money market funds increased to $281.7 billion in the fourth quarter from $278.7 billion in the third quarter but fell from $308.3 billion in the fourth quarter of 2013.
Elsewhere, the level of state and local government debt increased at an annual rate of 1.1% in the fourth quarter, according to Fed data, after decreasing at an annual rate of 2.8% in the previous quarter.
The debt of the federal government rose 5.4% at an annual rate in the fourth quarter, down from a 7.2% annual rate in the third quarter, according to the Fed.
And debt of households increased at an annual rate of 2.7% in the fourth quarter.
BlackRock: 2015 Really Started in February
While January represented a smooth continuation of 2014, February brought more of what the company expects from 2015: greater rate volatility and uneven returns, according to a recent BlackRock report.
The report was written by Peter Hayes, managing director and head of the municipal bonds group, James Schwartz, managing director and head of municipal credit research and Sean Carney, director and head of municipal strategy.
“January created a very strong, but unsustainable, start to the year,” stated the report. “February’s volatility felt more like what we anticipated for 2015. Despite the turn, nothing has changed about the municipal market -- we expect it to continue to offer good value in the fixed income space. Heightened volatility in rates and returns is likely as the Fed prepares to normalize interest rates.”
BlackRock also expects yield curve positioning to be a key driver of muni performance in 2015, according to the report.
“Currently, 95% of the yield curve’s full income potential can be achieved by going out just 20 years. Overall, February’s adjustment restored some measure of value to the market, offering opportunity for investors. Demand for tax-exempt munis remains strong, a view that should only be reinforced as tax time (a reminder of today’s onerous tax regime) approaches.”
The report says February brought increased volatility across nearly all fixed income assets with the biggest factors being uneven U.S. economic data and widening central bank divergence, as international rate cuts come at the same time the Federal Reserve lays groundwork for normalizing U.S. rates.
“Issuance in February was a robust $29.5 billion, well above market expectations and 22% higher than the 10-year trend. Year-to-date issuance is 33% above the five-year average and 23% above the 10-year average,” the report said. “Notably, the issuance was predominantly refundings (about 60%), as new-money supply has yet to surface in a meaningful way. Demand remains robust, at nearly $3 billion for the month, and concentrated in long-term and intermediate funds.”
That report also said that munis modestly underperformed Treasuries of comparable maturity, due largely to a supply/demand dynamic that was less favorable than that enjoyed during the prior 13 months of positive muni performance.
Tax-Exempt Money Market Funds Get Inflows
Tax-exempt money market funds rose $1.09 billion, bringing total net assets to $260.43 billion in the period ended March 9, according to The Money Fund Report, a service of iMoneyNet.com. This follows an outflow of $1.79 billion to $259.35 billion in the previous week.
The average, seven-day simple yield for the 396 weekly reporting tax-exempt funds remained at 0.01% for a 97th straight week.
The total net assets of the 991 weekly reporting taxable money funds rose $10.64 billion to $2.447 trillion in the period ended March 10, after an outflow of $4.06 billion to $2.437 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the seventh consecutive week.
Overall, the combined total net assets of the 1,387 weekly reporting money funds increased $11.73 billion to $2.708 trillion in the period ended March 10, which followed an outflow of $5.85 billion to $2.696 trillion in the prior period.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $1.340 billion to $12.400 billion on Thursday. The total is comprised of $2.581 billion competitive sales and $9.819 billion of negotiated deals.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 38,576 trades on Wednesday on volume of $10.958 billion. Most active on Wednesday, based on the number of trades, was the Los Angeles Department of Water and Power Series 2015 A power system revenue bond 3 1/4s of 2031, which traded 115 times at an average price of 99.541 with an average yield of 3.237%; (initial offering price of 98.139 and an initial offering yield of yield of 3.40%).
