Washington state and Hawaii kicked off action in the primary market on Tuesday as they led several big deals
Primary market
In the competitive arena, the Evergreen State sold $640.925 million of GOs in two offerings.
Barclays Capital won the $468.695 million of Series 2019C various purpose GOs with a true interest cost of 3.5347%. Bank of America Merrill Lynch won the $172.23 million of Series 2019D motor vehicle fuel tax GOs with a TIC of 3.5623%.
Proceeds will be used to reimburse spending on various state capital projects and programs. The financial advisors are Montague DeRose & Associates and Piper Jaffray. The bond counsel is Foster Pepper.
The deals are rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
Since 2009, the state has sold about $28 billion of bonds, with the most issuance occurring in 2012 when it offered $3.5 billion. Prior to this year, it sold the least in 2018 when it issued $1.2 billion of debt.
Also on Tuesday, the Spokane School District No. 81, Wash., sold $127.91 million of GOs.
JPMorgan Securities won the bonds with a TIC of 3.4441%. Proceeds will be used to finance capital construction and capital improvements. The financial advisor is Piper Jaffray. The bond counsel is Foster Pepper.
The deal, which is being issued under the Washington state school district credit enhancement program, is rated Aa1 by Moody’s and AA-plus by S&P.
The Elk Grove Unified School District, Calif., sold $121 million of Election of 2016 Series 2019 GOs.
BAML won the bonds with a TIC of 3.6803%. Proceeds will be used to finance the specific school facilities projects. The financial advisor is Government Financial Strategies. The bond counsel is Lozano Smith. The deal is rated AAA by Fitch.
BAML priced Hawaii’s $550 million of general obligation bonds for retail ahead of the institutional pricing on Wednesday. The deal is rated Aa1 by Moody's, AA-plus by S&P and AA by Fitch.
Goldman Sachs priced and repriced the Massachusetts Port Authority’s $313.66 million of Series 2019A revenue bonds, subject to alternative minimum tax. The deal is rated Aa2 by Moody’s and AA by S&P and Fitch.
Jefferies priced the Texas Department of Housing and Community Affairs’ $166.315 million of Series 2019A residential mortgage revenue bonds. The deal is rated Aaa by Moody’s and AA-plus by S&P.
Wells Fargo Securities priced the New York State Housing Finance Agency’s $134.39 million of Series 2019C affordable housing revenue refunding bonds. The deal is rated Aa2 by Moody’s.
Wells Fargo also priced Garland, Texas’ $147.61 million of electric utility system revenue refunding bonds. The deal is rated A-plus by S&P and AA-minus by Fitch.
Tuesday’s bond sales
Washington
Hawaii
California
Massachusetts
New York
Texas
Bond Buyer 30-day visible supply at $9.97B
The Bond Buyer's 30-day visible supply calendar increased $469.0 million to $9.97 billion for Tuesday. The total is comprised of $2.59 billion of competitive sales and $7.38 billion of negotiated deals.
NYC, NYC Water plan sales
The New York City Municipal Water Finance Authority expects to competitively sell $450 million of tax-exempt second general resolution revenue bonds the week of Feb. 25, according to Marj Henning, NYC Deputy Comptroller for Public Finance.
Additionally, NYC plans to offer $950 million of city GOs the week of March 4.
CreditSights: Has spring already sprung?
According to Patrick Luby, senior municipal strategist at CreditSights, at the recent pace of issuance, this month's new issue supply could be outweighed by the amount of demand to reinvest principal, and additional demand to reinvest interest payments may add to the imbalance between supply and demand.
"The constructive start to the year bodes well for the municipal bond market returns in the months ahead," Luby wrote in a recent report. "While monthly new issue supply traditionally increases after January, the demand side of the market appears to be firm, as shown by the strong demand for municipal bond mutual funds."
He also noted additional demand will come from investors reinvesting returned principal and interest.
"February redemptions will be heavier than January or April, but could very easily exceed new issue supply," Luby said. "The approach of the always heavy ‘Summer Redemption Season,’ will add significantly more demand to the market."
He also expects the approach of the April 15 tax deadline and the cost of the limitation of the SALT deduction will remind many individual investors (and their advisors) of the benefits of investing in double- or triple-exempt local municipal bonds, which will compound the already strong demand.
"With the market now pricing in a much lower risk of a 2019 rate hike by the Federal Reserve, some investors may be more willing to extend duration," he said. "So, while tactical investors may see incremental yields available by extending within their duration targets as attractive, they should be prepared to be nimble should inflation indicators move higher."
He added, long-term buy and hold investors who have been underweighting duration may wish to move some of that to slightly longer durations where they can be comfortable that they are earning a positive real return (yield minus the inflation rate).
“The Bloomberg BVAL triple-A benchmark curve hits 2% around the 11-year maturity, so investors in lower-rated credits should expect to earn a positive real return (that is, a yield higher than the 2% inflation rate) in the seven- to 10-year range, depending on credit quality and the state of issuance.”
Secondary market
Municipal bonds were mixed Tuesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as four basis points in the one- to five-year, seven- and eight-year and 28- to 30-year maturities, rose as much as a basis point in the six-year and nine- to 27-year maturities.
High-grade munis were also mixed, with muni yields falling as much as one basis point in the one- to eight-year and 30-year maturities and rising less than a basis point in the nine- to 28-year maturities.
Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising by one basis point while the yield on the 30-year muni maturity remained unchanged.
Treasury bonds were stronger as stock prices were higher.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 80.8% while the 30-year muni-to-Treasury ratio stood at 100.3%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Previous session's activity
The Municipal Securities Rulemaking Board reported 39,397 trades on Monday on volume of $11.11 billion.
California, Texas and New York were the municipalities with the most trades, with the Golden State taking 18.213% of the market, the Lone Star State taking 12.323% and the Empire State taking 10.978%.
Treasury to sell $50B 4-week bills
The Treasury Department said it will sell $50 billion of four-week discount bills Thursday. There are currently $29.999 billion of four-week bills outstanding.
Treasury also said it will sell $35 billion of eight-week bills Thursday.
The Treasury Department auctioned $38 billion of three-year notes with a 2 1/2% coupon at a 2.502% high yield, a price of 99.994254. The bid-to-cover ratio was 2.55.
Tenders at the high yield were allotted 59.78%. All competitive tenders at lower yields were accepted in full. The median yield was 2.474%. The low yield was 2.400%.
Gary E. Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
