Muni yields plunge as Chicago, San Jose, Trinity, Miami-Dade, deals sell
Mega-deals from San Jose, Trinity Health, Miami-Dade and Chicago all hit the screens on Wednesday while yields on municipal bonds plunged.
Concern that pending tax reform will lead to a dearth of supply, combined with uncertainty over expiration of the debt ceiling and a possible government shutdown, led to lower yields for all maturities of municipal bonds, with some dropping as much as 12 basis points.
“Cross over buyers are taking much of the value out of the muni market in light of expected lower supply next year,” said Robert Wimmel, head of the municipal fixed income team at BMO. “Also, regular muni buyers are trying to extend duration hoping to see outperformance in early 2018 on reduced tax-exempt supply.”
The MBIS municipal non-callable 5% GO benchmark scale was stronger in late trading.
The 10-year muni benchmark yield fell to 2.219% on Wednesday from the final read of 2.303% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield decreased to 2.695% from 2.778%.
The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipals finished stronger.
The yield on the 10-year benchmark muni general obligation fell 11 basis points to 1.88% from 1.99% on Tuesday, while the 30-year GO yield dropped 12 basis points to 2.46% from 2.58%, according to the final read of MMD’s triple-A scale.
“It was a riot once again today, as many of the municipal deals have been over the past several trading days,” Wimmel said. “At this point, you put in for a variety of deals and keep your fingers crossed. However, you know you will be disappointed with allotments.”
U.S. Treasuries were stronger on Wednesday. The yield on the two-year Treasury dropped to 1.80% from 1.82%, the 10-year Treasury yield declined to 2.33% from 2.36% and the yield on the 30-year Treasury decreased to 2.71% from 2.74%.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 83.9% compared with 84.4% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 95.9% versus 94.3%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 48,824 trades on Tuesday on volume of $13.79 billion.
Jefferies priced and repriced and restructured Chicago’s Sales Tax Securitization Corp.’s $575.19 million of sales tax securitization bonds for institutions after holding a retail order period on Tuesday.
The $174.56 million of Series 2017A tax-exempts were repriced as 5s to yield from 1.70% in 2020 to 2.40% in 2030. The $400.63 million of Series 2017B taxables were repriced to yield 3.372% in 2031, 3.422% in 2032 and 3.587% in 2043.
On Tuesday, the $174.56 million of Series 2017A tax-exempts were priced for retail as 5s to yield from 1.83% in 2020 to 2.65% in 2030. The $399.97 million of Series 2017B taxables were priced for retail to yield from about 100 basis points over the comparable Treasury security in 2031 to about 75 basis points over the comparable Treasury in 2034 and about 100 basis points over the comparable Treasury in 2043.
The “transaction benefited more from positive market tone and nontraditional demand [rather] than confidence in the ratings and structure,” said one Midwest trader. “The outcome was great cost of capital for the city of Chicago.”
The deal is rated AA by S&P Global Ratings and AAA by Fitch Ratings and Kroll Bond Rating Agency.
“It was oversubscribed, but there were some doubts that it’s AAA, making it a bit cheap,” said one market source. “The grabfest continues and this is just another example of that.”
BMO's Wimmel said his firm liked the deal.
“For the Illinois securitized sales tax deal, retail took about half, or more, of the tax-exempt portion,” he said. “We like the deal and put it in the AA range. We are in for short and long bonds.”
On Wednesday, Stifel sent around an indications of interest wire on the City of San Jose, Calif., Redevelopment Agency Successor’s $1.34 billion of senior taxable tax allocation refunding bonds.
The IOI has the 2018 maturity at about 20 basis points above the comparable Treasury to about 120 basis points above comparable Treasury in 2029. A term bond in 2034 was at about 100 basis points above comparable Treasury.
The deal is rated AA by S&P Global Ratings and Fitch Ratings.
In the competitive arena, Texas sold $155.72 million of general obligation college student loan bonds subject to the alternative minimum tax.
BAML won the bonds with a true interest cost of 3.1122%. The issue was priced to yield from 1.79% with a 5% coupon in 2022 to 3.12% with a 4% coupon in 2041.
The deal is rated triple-A by Moody’s and S&P.
Since 2007, the Longhorn State has issued roughly $3.58 billion of bonds, with the most issuance occurring in 2013 when it sold $641 million of bonds. The state did not come to market in 2016 and issued only $150 million each in 2015 and 2014.
In another negotiated transaction, Bank of America Merrill Lynch priced Trinity Health’s $992.38 million of hospital revenue bonds.
The $843.145 million of Series A 2017-MI deal for the Michigan Finance Authority were priced to yield from 1.37% with a 5% coupon in 2018 to 2.92% with a 5% coupon in 2037. A term bond in 2040 was priced to yield 3.34% with a 4% coupon, a term bond in 2042 was priced to yield 2.98% with a 5% coupon and a term bond in 2047 was priced to yield 2.83% with a 5% coupon in 2047.
The $47.695 million of Series A 2017-ID for the Idaho Health Facilities Authority was priced to yield 2.98% with a 5% coupon in 2042 and 3.03% with a 5% coupon in 2047.
The $106.54 million of Series A 2017-OH for Franklin County, Ohio was priced to yield 3.50% with a 3.25% coupon in 2042 and 3.03% with a 5% coupon in 2047.
The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
BAML also priced the Michigan State Hospital Finance Authority’s $214.735 million of refunding revenue bonds for Trinity Health Credit Group as a remarketing. The Series 2008C fixed-rate bonds were priced to yield from 1.37% with a 5% coupon in 2018 to 2.71% with a 5% coupon in 2032.
The deal is also rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
Wells Fargo Securities priced Miami-Dade County, Fla.’s $940.34 million of water and sewer system revenue and revenue refunding bonds.
The $389.25 million of Series 2017A revenue bonds were priced to yield from 2.33% with a 5% coupon in 2030 to 3.12% with a 4% coupon in 2039; a 2043 maturity was priced as 4s to yield 3.16% and a 2047 maturity was priced at par to yield 3.50%.
The $551.09 million of Series 2017B revenue refunding bonds were priced to yield from 1.72% with a 3% coupon in 2021 to 3.35% with a 3.25% coupon in 2039.
The deal is rated Aa3 by Moody’s Investors Service and A-plus by S&P and Fitch.
Goldman Sachs priced the California Department of Water Resources $351.43 million of Series AX water system revenue bonds for the Central Valley project.
The issue was priced as 5s to yield from 1.16% in 2018 to 2.29% in 2035. The deal is rated Aa1 by Moody’s and AAA by S&P.
RBC Capital Markets priced the Pennsylvania Housing Finance Agency’s $300.21 million of single-family mortgage revenue bonds for retail investors.
The $175.21 million of Series 2017-125A bonds subject to the alternative minimum tax were priced at par to yield 1.50% and 1.55% in a split 2018 maturity and from 2.90% and 2.95% in a split 2026 maturity to 3.15% and 3.20% in a split 2028 maturity, and 3.45% in 2032 and 3.70% in 2037. A 2025 maturity was not offered to retail investors.
The $125 million of Series 2017-125B non-AMT bonds were priced at par to yield 3.65% in 2042 and 3.70% in 2047.
The deal is rated Aa2 by Moody’s and AA-plus by S&P.
Citigroup priced the Tampa-Hillsborough County Expressway Authority, Fla.’s $202.34 million of Series 2017C refunding revenue and revenue bonds.
The $163.75 million of Series 2017B refunding revenue bonds were priced to yield from 1.96% with a 3% coupon in 2018 to 3.07% with a 4% coupon in 2037; a 2042 maturity was priced as 4s to yield 3.09%.
The $38.6 million of Series 2017C revenue bonds were priced as 5s to yield 2.88% in a 2048 bullet maturity.
The deal is rated A2 by Moody’s and A-plus by S&P.
BAML priced the Kentucky Economic Development Finance Authority’s $175.72 million of taxable refunding revenue bonds for the Louisville Arena Authority, Inc.
The bonds were priced at par to yield from 2.967% in 2021 to 4.455% in 2039. The 2021 maturity was about 85 basis points above the comparable Treasury and the 2039 maturity was about 175 basis points above the comparable Treasury.
The entire deal is insured by Assured Guaranty Municipal Corp. and is rated A2 by Moody’s and AA by S&P.
Hilltop Securities priced Galveston County, Texas’ $102.375 million of bonds.
The $78.965 million of unlimited tax road and refunding bonds were priced to yield from 1.45% with a 4% coupon in 2019 to 2.99% with a 4% coupon in 2038.
The $14.54 million of limited tax flood control and refunding bonds were priced to yield from 1.45% with a 2.00% coupon in 2019 to 2.99% with a 4% coupon in 2038.
The $8.87 million of limited tax county building bonds were priced to yield from 1.45% with a 2% coupon in 2019 to 3.21% with a 3% coupon in 2038.
The deal is rated Aaa by Moody’s and AA-plus by Fitch.
JPMorgan Securities received the written award of the New York City Housing Development Corp.’s $298.47 million of multi-family housing revenue bonds.
The $197.14 million of Series 2017G-1 sustainable neighborhood bonds were priced at par to yield from 1.15% in 2018 to 2.80% and 2085% in a spilt 2029 maturity, 3.10% in 2032, 3.45% in 2037, 3.60% in 2042, 3.70% in 2047, 3.75% in 2052 and 3.85% in 2057.
The $101.33 million of Series 2017G-2 sustainable neighborhood bonds were priced at par to yield 2% in 2057 with a mandatory tender date of 2021.
The deal is rated Aa2 by Moody’s and AA-plus by S&P.
In the -term sector, Citigroup priced Nassau County, N.Y.’s $472.44 million of tax anticipation and bond anticipation notes.
The $79.91 million of Series 2017A TANs were priced as 2 1/2s to yield 1.25% in 2018; the $297.36 million of Series 2017B TANs were priced as 3s to yield 1.58% in 2018; and the $95.18 million of Series 2017B BANs were priced as 5s to yield 1.63% in 2018.
The deal is rated SP1-plus by S&P and F1 by Fitch.
Bond Buyer 30-day visible supply at $18.6B
The Bond Buyer's 30-day visible supply calendar decreased $3.08 billion to $18.61 billion on Wednesday. The total is comprised of $5.14 billion of competitive sales and $13.48 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.