Yields on top-rated municipal bonds rose as much as 10 basis points as Treasury bonds weakened on reports that China may halt its buying of U.S. government debt.

In the primary market, Morgan Stanley priced a big taxable deal in the negotiated sector and won a large note sale in the competitive arena.

Secondary market
The MBIS municipal non-callable 5% GO benchmark scale was weaker in late trading.

The 10-year muni benchmark yield rose to 2.331% on Wednesday from the final read of 2.278% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield gained to 2.835% from 2.780%.

The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.

Top-rated municipal bonds finished substantially weaker on Wednesday. The yield on the 10-year benchmark muni general obligation rose seven basis points to 2.12% from 2.05% on Tuesday, while the 30-year GO yield gained eight basis points to 2.72% from 2.64%, according to the final read of MMD’s triple-A scale. Some intermediate maturities were from seven to 10 basis points higher.

"The muni market was offsides and needed to adjust," said one New York trader in reference to the big jump in yields.

U.S. Treasuries were weaker in late activity as yields rose for a fifth straight session after reports surfaced that Chinese officials were reviewing the nation’s foreign-exchange holdings and may slow or halt future purchases of Treasury securities.

The yield on the two-year Treasury gained to 1.97% on Wednesday from 1.96% on Tuesday, the 10-year Treasury yield rose to 2.56% from 2.55% and the yield on the 30-year Treasury increased to 2.89% from 2.88%.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 83.2% compared with 80.5% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 94.0% versus 91.5%, according to MMD.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 44,737 trades on Tuesday on volume of $10.96 billion.

Primary market
The trader also said the muni market supply/demand equation still favors a forward net negative supply scenario and as a result there are and will still be buyers.

"The market just needs to rebalance and redistribute risk before they chase the offered side again," he said. "In the meantime the buyers will continue to be content buying on the bidside. Spreads will, and should, continue to widen as the market adjusts. Lastly, the sellers will not be sticking the proceeds of their sales under the mattress. The money will be reinvested. One likely reinvestment vehicle will be taxable munis. The back off in absolute treasury rates combined with still rich muni ratios have left taxable munis cheaper on a relative value basis."

On Wednesday, Morgan Stanley priced Stanford Health Care, Calif.’s $500 million of Series 2018 corporate CUSIP taxable bonds.

The taxables were priced at par with a 3.795% coupon (about 90 basis points above the comparable Treasury 30-year security) and are due on Nov. 15, 2048, with a first interest payment on May 15.

Proceeds of the sale will be used for general corporate purposes.

The deal is rated Aa3 by Moody’s Investors Service, AA-minus by S&P Global Ratings and AA by Fitch Ratings.

JPMorgan Securities priced the Illinois Finance Authority’s $223.52 million of Series 2018 taxable revenue refunding bonds for the Ann and Robert H. Lurie Children’s Hospital of Chicago.

The issue was priced to yield from about 95 basis points over the comparable Treasury security in 2028 to about 120 basis points above the comparable Treasury security in 2033 and about 105 basis points above the comparable Treasury security in 2047.

The deal is rated AA-minus by S&P and AA by Fitch.

In the competitive bond arena on Wednesday, Worcester, Mass., sold $103.795 million of GOs in two separate sales.

Morgan Stanley won the $75.195 million of municipal purpose loan of 2018 Series A GOs with a true interest cost of 2.8991% while Raymond James won the $28.6 million of taxable Series B GOs with a TIC of 3.7379%.

The deals are rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.

Since 2008, Worcester has sold about $963 million of bonds, with the most issuance occurring in 2016 when it sold $170 million. The city saw a low year in 2009 when it sold $40.4 million.

In the short-term competitive sector on Wednesday, Colorado sold $375 million of Series 2017B education loan program tax and revenue anticipation notes.

Morgan Stanley won the TRANs and took: $250 million of the notes with a dollar bid of $101.23, a 4% coupon, and a premium of $3,075,000, an effective rate of 1.2516%; $75 million of the notes with a dollar bid of $101.21, a 4% coupon, and a premium of $909,000, an effective rate of 1.2914%; and $50 million of the notes with a dollar bid of $101.22, a 4% coupon, and a premium of $608,000, an effective rate of 1.2825%.

The TRANs are rated MIG1 by Moody’s and SP1-plus by S&P.

On Thursday, RBC Capital Markets is expected to price the Pennsylvania Commonwealth Financing Authority’s $410 million of Series 2018A taxable revenue bonds for the Plancon program.

The deal is rated A1 by Moody’s, A by S&P and A-plus by Fitch.

Bond Buyer 30-day visible supply at $5.84B
The Bond Buyer's 30-day visible supply calendar decreased $1.14 billion to $5.84 billion on Wednesday. The total is comprised of $2.48 billion of competitive sales and $3.36 billion of negotiated deals.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Chip Barnett

Chip Barnett

Chip Barnett is a journalist with more than 40 years of experience. Barnett is currently Senior Market Reporter for The Bond Buyer.
Aaron Weitzman

Aaron Weitzman

Aaron Weitzman is a markets reporter for The Bond Buyer, focusing on the sell side of the municipal bond market.