Muni buyers scarf down supply tsunami
The municipal bond market had no problems whatsoever digesting the massive amount of issuance that hit today and in the process saw yields drop down ever lower, getting ever closer to all time lows.
“Muni cash is performing well in the face of the rate rally,” said a trader on Wednesday afternoon. “At some point you would expect decoupling if the rally in rates continues. “
He added that all the deals today from what he heard and saw, did doing very well.
“Supply is uncovering significant demand as we see no signs that supply is causing any buy side hesitation.”
Citi priced CommonSpirit Health’s (Baa1/BBB+/BBB+) more than $6 billion of tax-exempt fixed rate bonds, tax-exempt hard put bonds and taxable bonds on Wednesday. CommonSpirit issued $3.3 billion of taxable series 2019 bonds directly and the $2.5 billion series 2019A tax-exempt fixed rate bonds and $623.39 million series 2019B tax-exempt put bonds will be issued by conduits in Colorado, Kentucky, Tennessee and Washington. Assured Guaranty insured a portion of the taxable deal, $700 million on the 2049 maturity and is rated AA by S&P and it was the biggest amount insured by Assured so far this year.
“The pricing seemed attractive,” said one source familiar with the deal. “It is my understanding that the deal was highly oversubscribed and bumped significantly.”
One trader added that the transaction was well over subscribed, anywhere from 2 to 15 times, depending on the tranche and part of the curve.
“Interesting to note the larger maturities were heavily over relative to the smaller indicating strong foreign participation,” he said.
Goldman Sachs priced the Port Authority of New York and New Jersey’s (Aa3/AA-/AA-) $1.3 billion of consolidated taxable, tax-exempt and alternative minimum tax bonds.
JPMorgan ran the books on Dallas Fort Worth International Airport’s (A1/A+/A+/AA) $1.17 billion of joint revenue refunding taxable bonds.
“The DFW was approximately six times over and was able to tighten between 2 and 10 basis points before launch,” the trader said.
Bank of America priced New York Liberty Development’s (Aa2/ / /AA-) and (Baa2/ / /BBB-) $650 million of second priority liberty revenue refunding bonds for the Bank of America Tower at One Bryant Park Project. The Class 1 priced at par with a 2.5% coupon in 2069 and Class 2 priced at par with a 2.75% in 2069.
BofA priced Honolulu’s (Aa1/ /AA+) $264.4 million of general obligation bonds and Honolulu’s (Aa1/ /AA+) $183.29 million of GO bonds for the Honolulu Rail Transit Project.
Morgan Stanley priced New York City’s (Aa1/AA/AA) $196.71 million of GO bonds.
New York City released details of its sale of about $197 million of tax-exempt GO stepped-coupon bonds. The bonds were previously variable- rates and are being converted to fixed-rates.
The bonds are due in 2038 and may be optionally redeemed at par on Aug. 1, 2023. The interest rate on the bonds will step up to 9% on Feb. 1, 2024 if the bonds are not remarketed, converted to another interest rate mode or redeemed.
During the retail order period on Tuesday, the city received around $40 million of orders from individual investors. The final yield for the bonds was increased by two basis points from the beginning of the institutional order period. The final stated yield for the bonds was 1.19%.
The tax-exempt stepped-coupon bonds were sold via negotiated sale through the City’s underwriting syndicate, led by book-running lead manager Morgan Stanley, with BofA Securities, Citigroup, Goldman Sachs, JPMorgan Securities, Jefferies, Loop Capital Markets, Ramirez & Co., RBC Capital Markets and Siebert Cisneros Shank & Co. serving as co-senior managers.
The South Carolina Transportation Infrastructure Bank (A1/ /A) sold $190.89 million of revenue bonds, with Morgan Stanley winning the bid war with a true interest cost of 1.8490%.
Wednesday’s bond sales
Munis were much stronger in late trading on the MBIS benchmark scale, with yields falling eight basis points in 10-year and by four basis points in the 30-year maturities. High-grades were also stronger, with MBIS’ AAA scale showing yields lowering six basis points in the 10-year and by five basis points in the 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year was six basis points lower, while the 30-year dropped eight basis points to 1.31% and 1.97%, respectively.
With today’s tumbling yields, we are getting close to record low muni yields. According to Dan Berger, strategist at MMD, the low for the MMD 10-year AAA GO is 1.29%, reached on June 27, 2016 and the low for the 30yr AAA GO is 1.93% was recorded on July 6, 2016.
The 10-year muni-to-Treasury ratio was calculated at 78.0% while the 30-year muni-to-Treasury ratio stood at 90.8%, according to MMD.
Treasury yields were on the decline and stocks were mixed, with the S&P 500 and Nasdaq in the green and the Dow in the red. The Treasury three-month was yielding 2.015%, the two-year was yielding 1.581%, the five-year was yielding 1.511%, the 10-year hit nearly a three year low on Wednesday morning at 1.608%, and was at 1.697% by market close. The 30-year was yielding 2.217%.
“The ICE muni yield curve is two to seven basis points lower,” ICE Data Services said in a Wednesday market comment. “The curve has pushed into uncharted territory as the front end, out to five-years, now yields below 1%. High-yield is also rallying with the sector down three basis points.”
ICI: Muni funds see $1.5B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.459 billion in the week ended July 31, the Investment Company Institute reported on Wednesday.
It was the 30th straight week of inflows into the tax-exempt mutual funds and followed an inflow of $2.711 billion in the previous week.
Long-term muni funds alone saw an inflow of $1.340 billion after an inflow of $2.396 billion in the previous week; ETF muni funds alone saw an inflow of $119 million after an inflow of $315 million in the prior week.
Taxable bond funds saw combined inflows of $7.206 billion in the latest reporting week after inflows of $7.696 billion in the previous week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $16.328 billion after inflows of $799.0 million in the prior week.
Previous session's activity
The Municipal Securities Rulemaking Board reported 31,762 trades Tuesday on volume of $11.672 billion. The 30-day average trade summary showed on a par amount basis of $10.57 million that customers bought $5.49 million, customers sold $3.11 million and interdealer trades totaled $1.97 million.
California, Texas and New York were most traded, with the Golden State taking 14.79% of the market, the Lone Star State taking 13.748% and the Empire State taking 11.669%.
The most actively traded security was the Alabama GO 5s of 2030, which traded 7 times on volume of $35 million.
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.