Top flight municipal bond yields rose again on Tuesday, according to traders, as bond sales fell shy of what was scheduled.
Primary Market
"Munis still had some selling pressure, albeit considerably more controlled," said Randy Smolik, senior market analyst at Municipal Market Data. "Primary deals offered a fair amount of concession, showed a heavier bias around the 5-year range and large concessions for long 4% coupon structure. Negotiated underwriters have pulled many of the deals originally scheduled today, but some deals surfaced."
Among deals placed on day-to-day status were Katy, Tx., Independent School District's $225 million of refunding bonds, Public Hospital District No. 1 of King County, Wash.'s, $186 million of limited tax general obligation bonds, Montgomery County Municipal Utility District No. 13, Tx.'s, $141 million of road and limited tax refunding bonds and State of Mississippi's $223 million of GO refunding bonds.
Wells Fargo priced the city of Richmond, Va.'s $502.260 million of public utility revenue and refunding bonds, series 2016A, to yield from 0.80% with a 4% coupon in 2017 to 3.66% with a 4% coupon in 2037. A term bond in 2040 was priced to yield 3.72% with a 4% coupon and a term bond in 2046 was priced to yield 3.78% with a 4% coupon. The deal is rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.
Since 2006, the city of Richmond has sold roughly $2.13 billion of securities, with the largest issuance before Tuesday's sale occurring in 2013 when it sold $375 million. The city did not issue any bonds in 2008 or 2011.
Citi priced the Alabama Federal Aid Highway Finance Authority's $236.395 million of special obligation revenue bonds. The bonds were priced and repriced to yield from 3.11% with a 5% coupon in 2031 to 3.28% with a 5% coupon in 2036. The deal is rated Aa1 by Moody's and AAA by S&P.
Morgan Stanley priced the Board of Governors of the University of North Carolina at Chapel Hill Hospital's $99.945 million of revenue bonds. The bonds were priced to yield 4.125% and 3,75% with a 4% coupon and 5% coupon in a split 2046 bullet maturity. The deal is rated Aa3 by Moody's and AA by S&P.
In the competitive arena, the Washington Suburban Sanitary District, Md., sold $381.81 million of consolidated public improvement bonds of 2016, Second Series. Bank of America Merrill Lynch won the auction with a true interest cost of 3.58%. The bonds were priced to yield from 0.85% with a 2% coupon in 2017 to 3.68% with a 4% coupon in 2046. The deal is rated triple-A by Moody's, S&P and Fitch.
The last time the district sold bonds competitively, was on May 17, when Wells Fargo won $145 million of bonds with a TIC of 2.81%.
The commonwealth of Massachusetts sold $200 million of transportation fund revenue bonds for the rail enhancement and accelerated bridge programs, BAML won the bidding with a TIC of 3.86%. The bonds were priced to yield from 3.60% with a 4% coupon in 2042 to 3.63% with a 4% coupon in 2046. The deal is rated Aa1 by Moody's and AAA by S&P.
The last time the commonwealth sold bonds competitively, Dec. 9, 2015, when Morgan Stanley won $100 million of bonds with a TIC of 4.06%.
The Board of Trustees for the University of Alabama at Birmingham sold two issues totaling roughly $116.54 million. BAML won the larger issue, $93.73 million, with a TIC of 3.83%. The bonds were priced to yield from 2.74% with a 5% coupon in 2027 to 3.71% with a 4% coupon in 2039. A 2043 term bond was priced to yield 3.80% with a 4% coupon. The $22.81 million deal was won by Regions Bank with a TIC of 1.94%. Both transactions are rated Aa2 by Moody's.
Secondary Market
The yield on the 10-year benchmark muni general obligation was three basis points higher to 2.19% from 2.16% on Monday, while the yield on the 30-year increased three basis points to 3.01% from 2.98%, according to a final read of MMD's triple-A scale.
On Monday, yields skyrocketed 22 basis points on both the 10-year and 30-year, as post-election jitters continued to hit munis hard.
According to Dan Berger, senior market strategist at TM3/MMD, the 10-year range has already reached its 12-month high and the 20-year range is very close to its 12-month high.
U.S. Treasuries were mixed at the close on Tuesday. The yield on the two-year rose to 1.00% from 0.99% on Monday, the 10-year Treasury was flat at 2.23% and the yield on the 30-year Treasury bond decreased to 2.96% from 2.99%.
"Treasuries chopped narrowly around Monday levels. Treasury notes were under more pressure after robust economic data and Fed comments highlighting a rate hike in December," Smolik said.
The 10-year muni to Treasury ratio was calculated at 97.9% on Tuesday compared to 97.2% on Monday, while the 30-year muni to Treasury ratio stood at 101.3% versus 99.9%, according to MMD.
Municipal CUSIP Requests Rise 7% in Oct.
Demand for new municipal CUSIP identifiers increased 7% in October, CUSIP Global Services said in a report released on Tuesday.
A total of 1,368 new municipal bond identifier requests were made last month, reaching a four-month high and enough to keep year-over-year municipal issuance growth levels positive at 8%.
The report tracks requests by issuers for bond identifiers as an early indicator of new volume and suggests a resurgence of municipal issuance in the next several weeks.
"October was notable for the strong volume of new CUSIP requests we received, but also for the record dollar value of bond offerings that were made over the course of the month," said Gerard Faulkner, director of operations for CUSIP Global Services. "Clearly, we're seeing a market environment in which debt issuers find it favorable to issue a large number of significant deals and our data supports that trend continuing into the near-term future."
Richard Peterson, senior director at S&P Global Market Intelligence, said a number of factors are at play in this data. "In addition to the overall favorable lending environment, we're also seeing significant M&A deal volume, which is increasing the demand for new debt instruments to finance those transactions," he said. "This combination of low interest rates and relatively robust capital markets activity should create a recipe for strong security issuance volumes as we head into 2017."
