Muni yields plunge on rate increase, tax talks

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Municipal bond yields fell by as much as seven basis points on Wednesday as the Federal Reserve raised interest rates as expected.

The Federal Open Market Committee voted 7-2 in favor of raising the federal funds target rate by 25 basis points to 1.375%. The meeting marked Chair Janet Yellen’s final press conference.

Muni market participants were also eyeing tax reform talks in Washington as reports of a possible House-Senate deal made the rounds. Issuers were also taking note and acting accordingly.

Wisconsin accelerated its general obligation refunding plans both due to both the market rally and the threat posed by the potential elimination of advance refundings under the proposed tax reform bills.

Without the market rally the refunding wouldn’t generate sufficient savings, said state capital finance director Dave Erdman. The state also recently came to market with a transportation refunding that was accelerated due to tax reform threats.

USIP Global Services said on Wednesday that total municipal CUSIP requests increased 20% in November to 1,372 from 1,219 in October. CUSIP orders for municipal bonds totaled 1,220 last month, up from 1,018 in the prior month.

The surge is due in large part to a tax reform proposal from the House, which introduces a prohibition on advanced refundings, which states and municipalities use to reduce borrowing costs, and on private activity bonds, CUSIP said. The Senate version of the bill preserves private activity bonds, but eliminates advance refundings.

“Starting in the last week of November and continuing so far into December, we’ve been seeing a significant increase in requests for municipal refunding bond and private activity bond identifiers as issuers rush to raise capital ahead of tax reform,” said Gerard Faulkner, director of operations for CUSIP Global Services. “Depending on whether the House or Senate version of the tax reform bill is passed, advance refundings and private activity bonds could be terminated, which could significantly alter the muni landscape.”

Long-term muni note requests fell to 20 in November from to 44 in October while short-term muni note demand also dropped to 82 orders from 107 in the previous month.

For the year through November, total municipal security CUSIP orders for all classes was 13,820, down 19% from 17,153 orders in the same period last year.

Among leading state activity, CUSIPs for scheduled public finance offerings from Texas issuers were the most active in November with 165 orders. Illinois was second with 110 municipal CUSIP orders followed by California issuers with 104 CUSIP requests.

For the year to date, Texas muni issuers rank first for orders with 1,474 requests followed by New York with 1,332 and California with 1,109.

Primary market
In the competitive arena on Wednesday, the Board of Regents of the University of Houston System sold $320.64 million of Series 2017C consolidated revenue and refunding bonds.

JPMorgan Securities won the bonds with a true interest cost of 3.2949%.The issue was priced to yield from 1.42% with a 5% coupon in 2019 to 3.15% with a 4% coupon in 2039. A 2041 maturity was priced as 3 1/4s to yield 3.40%, a 2043 maturity was priced as 4s to yield 3.19% and a 2049 maturity was priced as 4s to yield 3.28%.

The deal is rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings.

In the negotiated sector, JPMorgan priced Oregon’s $103.12 million of Series 2017 general obligation bonds.

The $73.89 million of Series 2017U fixed-rate refunding Series 100 veterans’ welfare bonds were priced at par to yield from 1.30% in 2018 to 2.95% in 2029, 3.50% in 2037, 3.65% in 2042 and 3.70% in 2044.

The $29.24 million of Series 2017V fixed-rate Series 101 veterans’ welfare bonds were priced at par to yield 1.20% in 2018, 1.70% in 2020, 2% in 2022, 2.20% in 2024, 2.50% in 2026, 2.80% in 2028 and 3.20% in 2032; a 2048 planned amortization class maturity was priced as 4s to yield 2.35% with an average life of five years.

The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.

Since 2007, the Beaver State has issued roughly $5.45 billion of bonds, with the most issuance before this year occurring in 2015 when it sold $712 million of bonds. The state saw a low year of issuance in 2009 when it sold $107 million.
Goldman Sachs priced the New Hope Cultural Education Facilities Finance Corp.’s $332 million of Series 2017A hospital revenue bonds for the Children’s Health System of Texas.

The issue was priced to yield from 1.77% with a 5% coupon in 2020 to 3.45% with a 4% coupon in 2037. A 2040 maturity was priced as 4s to yield 3.49% and a 2047 maturity was priced as 5s to yield 3.13%

The deal is rated Aa2 by Moody’s and AA by Fitch Ratings.

Goldman also priced the Dormitory Authority of the State of New York’s $294.42 million of Series 2017-1 revenue bonds for Memorial Sloan-Kettering Cancer Center.

The bonds were priced to yield from 1.17% with a 5% coupon in 2018 to 3.26% with a 4% coupon in 2037. A term bond in 2042 was priced to yield 2.97% with a 5% coupon and a term bond in 2047 was priced to yield 3.42% with a 4% coupon.

The DASNY deal is rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.

RBC Capital Markets priced the Florida Housing Finance Corp.’s $200 million of Series 2017-1 homeowner revenue bonds not subject to the alternative minimum tax.

The issue was priced at par to yield from 1.80% in 2020 to 2.85% and 2.90% in 2028, 3.25% in 2032, 3.60% in 2037, 3.75% in 2042, and 3.80% in 2047. A 2048 planned amortization class maturity was priced as 4s to yield 2.36% with an average life of 4.99 years.

The deal is rated Aaa by Moody’s.

Jefferies priced Suffolk County, N.Y.’s $417.88 million of GO tax anticipation notes for 2018 taxes and bond anticipation notes, Series 2017 B.

The $410 million of TANs, July 25, 2018, were priced to yield 1.57% with a 2.50% coupon. The $7.88 million of BANs, due Dec. 28, 2018, were priced to yield 1.65% with a 3% coupon.

The deal is rated SP-1 by S&P and F1 by Fitch.

Bond Buyer 30-day visible supply at $15.71B
The Bond Buyer's 30-day visible supply calendar decreased $5.68 billion to $15.71 billion on Wednesday. The total is comprised of $2.85 billion of competitive sales and $12.86 billion of negotiated deals.

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

The 10-year muni benchmark yield fell to 2.287% on Wednesday from the final read of 2.329% on Tuesday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield decreased to 2.775% from 2.802%.

The MBIS benchmark index, which is comprised of investment-grade municipal securities, is updated hourly on the Bond Buyer Data Workstation.

Top-rated municipal bonds finished stronger on Wednesday. The yield on the 10-year benchmark muni general obligation fell four basis points to 2.01% from 2.05% on Tuesday, while the 30-year GO yield dropped seven basis points to 2.61% from 2.68%, according to the final read of MMD’s triple-A scale.

U.S. Treasuries were narrowly mixed on Wednesday. The yield on the two-year Treasury declined to 1.79% from 1.84%, the 10-year Treasury yield declined to 2.36% from 2.42% and the yield on the 30-year Treasury decreased to 2.75% from 2.80%.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 85.5% compared with 85.4% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 95.4% versus 96.4%, according to MMD.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 45,956 trades on Tuesday on volume of $13.03 billion.

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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Primary bond market Secondary bond market State of Oregon New York State Dormitory Authority Florida Housing Finance Corporation Suffolk County