Municipal bonds weakened as the last of Tuesday's new issues were priced, as investors awaited the decision of the Federal Reserve monetary policymakers, which will come on Wednesday.
Muni yields on some maturities increased by as many as five basis points, traders said.
Primary Market
A few larger deals from issuers in Florida and Texas priced, as underwriters and dealers seek to wrap up business before the Fed announcement on Wednesday. The Federal Open Market Committee is expected to increase the federal funds target rate by 25 basis points from near zero after their meeting.
Jacksonville, Fla., competitively sold $200.265 million of transportation refunding revenue bonds, as Wells Fargo Securities won the bidding war with a true interest cost of 3.2%. The bonds were priced to yield from 0.60% with a 3% coupon in 2016 to 3.634% with a 3.5% coupon in 2037. The deal is rated A1 by Moody's and AA-minus by Standard & Poor's and Fitch.
Since 2005, Jacksonville has issued $3.12 billion of debt. The years of 2008 and 2012 saw the most issuance with $570 million and $952 million, respectively. The years of 2005 and 2006 were low years, when the River City issued $45 million and $69 million, respectively. Jacksonville has been to market an average of 3.3 times per year during since 2005.
RBC Capital Markets priced the Spring Independent School District in Harris County, Texas' $139.68 million of Series 2015 unlimited tax refunding bonds on Tuesday. The bonds are priced to yield from 1.22% with a 5% coupon in 2019 to 3.04% with a 4% coupon in 2033. The 2016 maturity was offered as a sealed bid. The deal is wrapped by Permanent School Fund Guarantee Program and is rated triple-A by both Moody's and S&P.
Not much action is expected on Wednesday, as the market will take a pause as investors wait for the announcement.
On Thursday, Barclays Capital is slated to price Utah Housing Corp.'s $100 million of Series 2015D single-family mortgage bonds. The deal are rated Aa3 by Moody's.
Secondary Market
On Tuesday, the yield on the 10-year benchmark muni general obligation rose three basis points to 1.98% from 1.95% on Monday, while the 30-year yield was five basis points higher to 2.89% from 2.84%, according to a final read of Municipal Market Data's triple-A scale.
"After nearly reversing Friday's big gains, treasuries continued to trend lower in price," said Randy Smolik, MMD Senior Market Analyst, in a market comment. "Although the Fed is fully expected to raise rates 25bps in Wednesday's FOMC communication, lack of inflation pressure was expected to slow the ability of future rate hikes."
Smolik added that one major reason of restraint for muni sellers on Monday was expectation that treasuries could recover recent losses.
"But, after being greeted with further drift in treasuries Tuesday morning, muni sellers wasted no time hitting weaker bids and selling turned aggressive," he said.
U.S. Treasury bonds slumped at Tuesday's close as the yield on the two-year rose to 0.97% from 0.94% on Monday, while the 10-year yield increased to 2.27% from 2.23%, and the 30-year Treasury jumped to 3.00% from 2.96%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 86.7% compared to 87.4% on Monday, while the 30-year muni to Treasury ratio stood at 96.3% compared to 95.9%, according to MMD.
