Munis turn weaker as N.J. TTFA, N.Y. MTA deals come to market
Municipal bond prices weakened on Wednesday as supply flooded into the primary sector.
“Trade volumes are robust as the higher yields are attracting participants,” ICE Data Services said in a Wednesday market comment. “Taxable yields are also moving higher, but are outperforming Treasuries and comparable corporate bonds.”
Citigroup priced and repriced the New Jersey Transportation Trust Fund Authority’s $1.579 billion of Series 2018A transportation system bonds on Wednesday after it circulated a pre-marketing scale late Tuesday.
Proceed will be used to refund outstanding bonds.
The deal is rated Baa1 by Moody’s Investors Service, BBB-plus by S&P Global Ratings and A-minus by Fitch Ratings, except for the 2037 maturity which is insured by Build America Mutual and rated AA by S&P.
Since 2008, the authority has sold almost $16 billion of debt, with the most issuance occurring in 2016 when it offered $2.74 billion of bonds. It did not come to market in 2017.
In the short-term competitive sector, the N.Y. Metropolitan Transportation Authority came to market with two sales of transportation revenue bond anticipation notes totaling $900 million.
Three groups including Citi, Morgan Stanley and JPMorgan won the $450 million of Series 2018C, Subseries 2018C-1 BANs while five groups including Bank of America Merrill Lynch, JPMorgan, Citi, Goldman and Morgan Stanley won $450 million of Series 2018C, Subseries 2018C-2 BANs.
Proceeds of the sale will be used to finance existing transit and commuter projects. Public Resources Advisory Group is the financial advisor.
The deal are rated MIG1 by Moody’s, SP1 by S&P and F1-plus by Fitch.
Bank of America Merrill Lynch priced Columbus, Ohio’s $399.795 million of Series 2018A&B tax-exempt general obligation bonds and Series 2018C&D taxable GOs.
The deal is rated triple-A by Moody’s, S&P and Fitch.
JPMorgan Securities priced the Illinois Finance Authority’s $341.64 million of Series 2018A revenue refunding bonds for the OSF Healthcare System.
The deal is rated A2 by Moody’s and A by S&P.
Barclays Capital priced the Kansas Department of Transportation’s $173.13 million of Series 2018A highway revenue bonds.
The deal is rated Aa2 by Moody’s and AAA by S&P.
Morgan Stanley priced the New York City Housing Development Corp.’s $125 million of taxable Series 2018I multi-family housing revenue sustainable neighborhood bonds.
The deal is rated Aa2 by Moody’s and AA-plus by S&P.
In the competitive arena, Mesirow Financial won the University of Illinois $131.375 million of Series 2018A revenue bonds with a true interest cost of 4.0359% while Robert W. Baird won the $18.74 million of Series 2018B revenue bonds with a TIC of 4.0582%.
PFM Financial Advisors is the financial advisor. Proceeds of the bonds will be used to refund certain outstanding obligations and finance the construction of a new football performance center and the renovation and expansion of a residence hall dining facility at Urbana campus.
The deals are rated A1 by Moody’s and A-minus by S&P.
Wednesday’s bond sales
Click here for the TTFA repricing
Bond Buyer 30-day visible supply at $9.20B
The Bond Buyer's 30-day visible supply calendar decreased $2.33 billion to $9.20 billion for Wednesday. The total is comprised of $2.99 billion of competitive sales and $6.21 billion of negotiated deals.
Municipal bonds were weaker on Wednesday, according to a late read of the MBIS benchmark scale, with yields rising as much as two basis points in the one- to 30-year maturities.
High-grade munis mostly weaker, according to yields calculated on MBIS' AAA scale, which saw yields fall less than one basis point in the nine- to 11-year maturities and rise by as much as one basis point in the one- to eight-year and 12- to 30-year maturities.
Municipals weakened substantially on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising by four basis points while the yield on 30-year muni maturity increased six basis points.
Treasury bonds were weaker as stock prices traded higher.
On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 82.9% while the 30-year muni-to-Treasury ratio stood at 98.6%, 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 45,746 trades on Tuesday on volume of $12.62 billion.
California, Texas and New York were the municipalities with the most trades, with the Golden State taking 17.968% of the market, the Lone Star State taking 11.862% and the Empire State taking 11.513%.
BlackRock: Be nimble, flexible
BlackRock’s fixed income team held a breakfast briefing Wednesday morning, as team members shared their thoughts on trends that have played out so far this year, what to expect the rest of the year, and their tactics and tricks in investing in fixed income in today’s world.
“Today you have to be nimble and need to be flexible, as today it’s no longer a ‘one size fits all’ strategy when it comes to investing in fixed income,” said Sean Carney, head of municipal strategy within BlackRock’s global fixed income group. “In a rising rate environment, you need to be able to take advantage of opportunities when they arise and change duration when you have to.”
He added that munis have been a fantastic investment this year, continuing that trend.
“Munis are great for their stability, low volatility and of course for their tax-advantage and this year we are being reminded how munis react in a rising rate environment.”
Carney said that munis are still having a good year; although the market is down about a quarter in absolute terms, in relative terms it's up.
“Although demand is up and supply is curtailed, the technicals tend to work out in the long run for munis and there is stability in the asset class going forward,” said Carney. “Investing in fixed income is challenging but necessary in today’s environment.”
Rick Rieder, BlackRock’s global chief investment officer of fixed income said the front end of the yield curve offers attractive carry and less sensitivity to changes in interest rates.
“The Fed would have to raise rates by a quarter, 11.8 times between now and this time next year in order for you to lose money on the two-year note and they would have to move 5.3 times in that same time frame, in order for you to lose money on the 3-year note,” Rieder said. “There is lots of money flowing into the front/short end of the curve.”
He continued to say that he believes the Fed will only hike one or two times next year and fall short of their projection of four hikes.
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 Ziad Saba at 212-803-6079 for more information.