Municipals end weaker after FOMC leaves rate steady

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Top-rated municipal bonds finished weaker on Wednesday, according to traders, after the Federal Open Market Committee as expected left rates unchanged at a 1% to 1.25% range. The Federal Reserve also announced it will begin its balance-sheet-reduction plan in October using the plan laid out earlier this year.

Fed Chair Janet Yellen summarized Fed projections by saying GDP is expected to be “a touch stronger” than projected in June while inflation is seen as “softer this year and next.”

Third quarter growth will show the effects of Hurricanes Harvey, Irma and Maria, but will bounce back quickly, Yellen said.

She repeated that “gradual rate hikes are warranted” but are “not on a pre-set course.” Interest rates “will stay below levels from previous decades.”

Secondary market
The yield on the 10-year benchmark muni general obligation rose one basis point to 1.92% from 1.91% on Tuesday, while the 30-year GO yield gained one basis point to 2.80% from 2.79%, according to the final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were also weaker Wednesday. The yield on the two-year Treasury rose to 1.44% from 1.40% on Tuesday, the 10-year Treasury yield gained to 2.27% from 2.24% and the yield on the 30-year Treasury bond increased to 2.82% from 2.81%.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 84.4% compared with 85.4% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 99.3% versus 99.4%, according to MMD.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 36,891 trades on Tuesday on volume of $7.41 billion.

MMD yields on the rise
Municipal bond yields have been slowly rising since the start of the month, with the municipal 10-year gaining to 1.91% on Sept. 19, according to the MMD triple-A benchmark scale.

The 10-year was yielding 1.85% on Sept. 5, then dipped slightly to 1.81% on Sept. 7, rising to 1.86% by mid-month before hitting its high of 1.92% on Wednesday.
Primary market
There were no major bond sales on tap for the day.

On Thursday in the competitive arena, the Cherry Creek School District No. 5, Colo., is selling $178.34 million of unlimited tax general obligation bonds

The deals consist of $100 million of Series 2017C GOs and $78.34 million of Series 2017B GOs.

The deal is rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings.

In the negotiated sector on Thursday, D.A. Davidson & Co. is expected to price the California Statewide Commission’s Series 2017A refunding revenue bonds for the California Baptist University.

Stifel is expected to price Wayne Township School Building Corp., Ind.’s $100 million of ad valorem property tax first mortgage refunding and improvement bonds.

The deal is rated AA-plus by S&P.

NYC MWFA announces $380M bond sale
The New York City Municipal Water Finance Authority plans to issue $380 million of tax-exempt fixed-rate bonds for institutions on Sept. 26, the authority announced Tuesday.

The underwriters will hold a one-day retail order period on Monday, Sept. 25.

The bonds will be sold through the authority’s underwriting syndicate, led by bookrunning lead manager Raymond James and joint lead manager Blaylock Van with Barclays and Siebert Cisneros Shank & Co., serving as co-senior managers on the transaction.

Proceeds from the bond sale will be used to fund capital projects and refund certain of the water authority's outstanding variable-rate demand bonds.

Gary Siegel contributed reporting of the Fed to this report.

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Primary bond market Secondary bond market Cherry Creek School District No. 5, CO California Statewide Commission New York City Municipal Water Finance Authority