Prices of top-shelf municipal bonds closed weaker on Wednesday, traders said, with yields on some maturities rising by five basis points. Treasury prices were also trading lower after the Federal Open Market Committee decided to keep interest rates unchanged on the heels of a weak report on U.S. gross domestic product.
Real GDP posted a gain of just 0.2% in the first quarter after seeing three quarters of healthy growth.
"Even though the Street fully believes that GDP will rebound in the second quarter, the Fed will not get confirmation of this until well into the summer -- putting the September meeting as the first likely chance the Fed will decide to start normalizing rates," Municipal Market Data Senior Market Analyst Randy Smolik wrote in a market comment.
Other market analysts agreed that it will be later rather than sooner as to the timing of a rate hike. But they also stressed that even more important than timing was the size and pace of the rate changes.
"The timing of the first Federal Reserve rate increase is not yet certain, although September appears most likely," Brian Rehling, Co-Head of Global Fixed Income Strategy at Wells Fargo Investment Institute, said in a research report.
He added that what this means for investors is that the impact from the initial Fed rate increase is expected to be minimal.
"As a result, we do not anticipate significant, sustained disruptions in the fixed-income markets," Rehling said. "A very slow and gradual process of rate increases should allow benchmark interest rates to remain relatively low."
Secondary Market
The yield on the 10-year benchmark muni general obligation on Wednesday rose four basis points to 2.07% from 2.03% on Tuesday, while the yield on the 30-year GO was up five basis points to 3.00% from 2.95%, according to a read of MMD's triple-A scale.
On Wednesday, April 22, the yield on the 10-year muni stood at 2.00% while the yield on the 30-year was at 2.91%.
"Traders appeared to be relegated to the sidelines as municipal bond secondary trading was light," according to a note from Interactive Data, which added that muni yields moved in sympathy with Treasuries.
Treasury prices were lower with the yield on the two-year Treasury note rising to 0.57% from 0.56% on Tuesday, while the 10-year yield increased to 2.05% from 1.98% and the 30-year yield rose to 2.75% from 2.67%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 101.8% versus 102.5% on Tuesday, while the 30-year muni to Treasury ratio stood at 109.5% compared to 110.2%, according to MMD.
Primary Market
The New York State Dormitory Authority came to market on Wednesday with two separate issues totaling $335.74 million.
Siebert, Brandford, Shank priced DASNY's $266.84 million of State University of New York Series 2015A dormitory facilities revenue bonds for retail investors. The institutional pricing will be held on Thursday.
The bonds were priced to yield from 0.73% with 3% and 5% coupons in a split 2017 maturity to 3.79% with a 3.75% coupon in 2036. No retail orders were taken in the 2028-2032 or 2034 maturities. The 2016 maturity was offered as a sealed bid. The SUNY issue is rated Aa3 by Moody's Investors Service and A-plus by Standard & Poor's and Fitch Ratings.
JPMorgan priced a separate DASNY $68.9 million offering for the Orange Regional Medical Center Obligated Group. The Series 2015 revenue bonds were priced as 5s to yield from 1.17% in 2016 to 4.44% in 2035; a 2040 term was priced as 5s to yield 4.45% and a 2045 term was priced as 5s to yield 4.50%. The issue is rated Ba1 by Moody's and BB-plus by Fitch.
On April 9, DASNY came to market with more than $1 billion of higher education bonds with issues for New York University, Columbia University and The New School. DASNY is one of the most prolific issuers in the United States and has ranked among the top 10 muni issuers in each of the past 10 years, coming in at number three in 2014.
On Thursday, the state of Massachusetts is coming to market with two separate competitive sales of general obligation bonds totaling $550 million.
The offerings consist of $450 million of Series B consolidated loan of 2015 GOs and $100 million of consolidated loan of 2015 GOs. Proceeds will benefit various capital purposes. The bonds are rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch Ratings.
The sale was originally structured to include a taxable component, but this was changed during the sale process.
"We determined that we wouldn't need taxable proceeds," said Matthew T. Sheaff, communications director for state Treasurer Deborah Goldberg. "Because all of the bonds will be tax-exempt, that changed where and how much we wanted to place at particular spots on the curve."
Since 1995, Massachusetts has issued $47.22 billion of general obligation debt, with high years of issuance occurring in 2002 and 2005 when the state issued $4.63 billion and $3.36 billion, respectively.
The Bay State saw low years of issuance in 1999 and 2008, when issuance fell to $995.2 million and $1.2 billion, respectively. 1999 was the only year since 1995 when the commonwealth didn't issue at least $1 billion.
