Top-quality municipal bonds rallied on Wednesday, traders said, after the Federal Open Market Committee’s statement on monetary policy dropped the word “patient,” indicating a possible interest rate increase as early as June. Yields on some top-shelf munis fell by as much as six basis points at the close.
In the primary market, a $205 million Albuquerque water deal was priced and an Omaha competitive offering was sold as the last of the week’s big issues came to market.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell six basis points to 2.03% from 2.09% on Tuesday, while the yield on 30-year GO declined five basis points to 2.85% from 2.90%, according to the final read of Municipal Market Data's triple-A scale.
The municipal bond market spent most of the day waiting for the FOMC statement. Analysts at Municipal Market Data had forecast earlier in the day that the Federal Reserve would remove the word patient from its statement.
“In our view, it will be taken out,” MMD predicted, adding that it would be “replaced by language emphasizing that the change does not suggest a shift in their policy outlook and that they can move at any time, with the implication being that it does not necessarily mean a June liftoff.”
The Fed also released new estimates that lowered the median for the federal funds rate at the end of 2015 to 0.625% versus 1.125% in December, Bloomberg reported.
“Just because we removed the word patient from the statement doesn’t mean we are going to be impatient,” Chair Janet Yellen said in a press conference after the meeting.
The FOMC said the time to tighten would be after it sees more job market improvement and “is reasonably confident that inflation will move back to its 2% objective over the medium term.” The FOMC added that an increase in the federal funds target rate is unlikely at its April meeting.
Treasury prices were also higher on Wednesday. The yield on the two-year Treasury note declined to 0.56% from 0.66% on Tuesday, while the 10-year yield decreased to 1.97% from 2.06% and the 30-year yield dropped to 2.54% from 2.62%.
The 10-year muni to Treasury ratio was calculated at 106.0% on Wednesday versus 101.7% on Tuesday, while the 30-year muni to Treasury ratio stood at 113.7% compared to 110.9%.
Primary Market
JPMorgan Securities priced the Albuquerque Bernalillo county water utility authority’s $204.720 million of Senior Lien water and sewer system refunding and improvement revenue bonds. The bonds are priced to yield from 0.74% with a 4% coupon in 2017 to 3.37% with a 5% coupon in 2033. The issue is rated Aa2 by Moody’s Investors Service, AA-plus by Standard & Poor’s and AA by Fitch Ratings.
JPMorgan also priced the Michigan Finance Authority’s $167.89 million of hospital revenue refunding bonds for McLaren HealthCare. The $102.02 million Series A bonds were priced to yield from 0.48% with a 3% coupon in 2016 to 4% with a 4% coupon and to 3.55% with a 5% coupon in a split 2035 maturity; a 2038 term bond was priced as 5s to yield 3.63%. The $65.88 million Series B bonds were priced to yield from 0.45% with a 2% coupon in 2016 to 3.65% with a 5% coupon in 2035. The issue is rated Aa3 by Moody’s and AA-minus by Fitch.
And JPMorgan received the written award on the San Mateo County Transit District’s $210.28 million of Series A limited tax refunding bonds. The issue was priced to yield from 1.17% with a 4% coupon in 2019 to 3.40% with a 3.375% coupon in 2034. The deal is rated triple-A by S&P and AA-plus by Fitch.
The largest competitive bond sale of the week was awarded on Wednesday. Douglas County Public School District No. 001, Omaha, Neb.’s $141 million of Series 2015 GOs was won by JPMorgan with a true interest cost of 3.4189%. Pricing information was unavailable. The bonds were rated Aa1 by Moody’s and triple-A by S&P. The school district last sold bonds competitively on July 11, 2001, when Merrill Lynch won $100 million of Series 2001B GOs with a true interest cost of 5.0372%.
Late on Tuesday, Citigroup Global Markets received the official award on the state of Oregon's $253.58 million of general obligation bonds, issued under Article XI-Q for state projects. The bonds were priced in three series following a retail order period Monday. The deal is rated Aa1 by Moody's and AA-plus by both S&P and Fitch. Since 1995, the Beaver State has sold roughly $6.084 billion of bonds. The highest issuances came in 2003 and 2013, with $2.205 billion sold and $719.1 million, respectively. The lowest issuances occurred in 1995 and 2004, when the state sold $13.5 million and $58.1 million, respectively.
