Top-quality municipal bonds finished weaker on Tuesday, according to traders, as more supply came their way with an upsized New York Metropolitan Transportation Authority’s green bond sale headlining the new issue slate.
The majority of the larger sales were all squeezed into Tuesday, ahead of the Federal Open Market Committee concluding its two-day meeting Wednesday with an announcement from Chair Janet Yellen about interest rates.
“Overall, the market is still doing ok. While there's some hesitancy to take prices higher in light of FOMC [on Wednesday], there's plenty of demand still supporting the market, especially the in the primary,” said one New York trader.
Another New York trader said that there just continues to be a disconnect between the primary and secondary markets.
“There is money around and it is being put to work to buy relative value in the primary and foregoing the secondary,” he said. “The market is thin, there are few sellers and folks are buying the new issue. The curve is flattening and there is a little bit of relative value on the short end of the curve, so people are pushing short, not long,” said the second trader.
Citi priced the N.Y. MTA’s $662.03 million of Series 2017B climate bond certified transportation revenue refunding green bonds for institutions after holding a one-day retail order period. The size of the offering was increased three times from the originally expected $500 million.
The issue was priced for institutions to yield from 1.23% with 4% and 5% coupons in a split 2021 maturity to 2.38% with a 5% coupon in 2028. Earlier on Tuesday, the issue was tentatively structured at $619 million for institutions and priced to yield from 1.25% with 4% and 5% coupons in a split 2021 maturity to 2.42% with a 5% coupon in 2028.
On Monday, the issue was structured at $598 million and priced for retail to yield from 1.25% with 4% and 5% coupons in the split 2021 maturity to 2.41% with a 5% coupon in 2028.
“[The MTA] deal saw very robust retail demand [on Monday] followed up by strong institutional orders [on Tuesday]. The deal bumped two to four basis points. The green bond designation definitely broadens the buyer base,” the first trader said.
The other trader agreed that the green bond label does in theory broaden the base of investors, but said there was no quantitative value in terms of basis points.
“I just think that if you look at the people that bought the bonds, how many of them would not have bought if it did not have that label, I think that number would be low,” he said.
The deal is rated A1 by Moody’s Investors Service and A-minus by S&P Global Ratings and Fitch Ratings and AA-plus by Kroll Bond Rating Agency.
Barclays Capital priced the Regents of the University of California’s $860.75 million of Series 2017M tax-exempt and Series 2017N taxable limited project revenue bonds.
The $733.82 million of Series 2017M tax-exempts were priced to yield from 0.67% with a 3% coupon in 2018 to 3.20% with a 3% coupon and 2.81% with a 5% coupon in a split 2037 maturity; a 2042 term bond was priced as 5s to yield 2.95%.
The $126.93 million of Series 2017N taxables were priced to yield from about 10 basis points over the comparable Treasury security in 2018 to about 105 basis points over the comparable Treasury security in 2030.
The deal is rated Aa3 by Moody’s, AA-minus by S&P and AA-minus by Fitch.
Goldman Sachs priced the state of Ohio’s $341.87 million of general obligation full faith and credit/highway user receipts highway capital improvements bonds.
The $205.08 million of Series T improvements bonds were priced as 5s to yield from 0.81% in 2018 to 2.18% in 2028 and to yield from 2.29% in 2030 to 2.50% in 2033.
The $136.79 million of Series U improvements refunding bonds were priced as 5s to yield from 1.40% in 2023 to 2.19% in 2028.
The deal is rated Aa1 by Moody’s, AAA by S&P and AA-plus by Fitch.
Since 2007, the state has issued $12.14 billion of securities, with the most issuance taking place in 2008, when it sold $2.13 billion of bonds. The Buckeye State saw a low year of issuance in 2013, when it sold $259 million. Tuesday’s sale brings the state issuance above last year's total and makes it the third highest issuance year in the decade.
Bank of America Merrill Lynch priced the Northeast Ohio Regional Sewer District’s $243.02 million of Series 2017 wastewater improvement refunding revenue bonds.
The issue was priced to yield from 0.91% with a 5% coupon in 2019 to 3.09% with a 4% coupon in 2038; a 2040 maturity was priced as 3 1/4s to yield 3.43% and a 2043 maturity was priced as 4s to yield 3.22%.
The deal is rated Aa1 by Moody’s and AA-plus by S&P.
Ziegler priced the Mayor and Council of Rockville Economic Development Inc., Md.’s $224.28 million of Series 2017 A1-C3 revenue and revenue refunding bonds for the Ingleside at King Farm project.
The $44.02 million of Series 2017A-1 economic development refunding revenue bonds were priced as 5s to yield from 1.72% in 2018 to 3.84% in 2032 and 4.06% in 2037.
The $21.69 million of Series 2017A-2 economic development revenue refunding bonds were priced to yield from 1.74% with a 4% coupon in 2018 to 3.85% with a 5% coupon in 2032; a 2035 maturity was priced as 5s to yield 4.01%.
The $76.28 million of Series 2017B economic development revenue bonds were priced as 4 1/4s to yield 4.36% in 2037, as 5s to yield 4.18% in 2042, as 4 1/2s to yield 4.55% in 2043 and as 5s to yield 4.25% in 2047.
The $14.65 million of Series 2017C-1 tax-exempt mandatory paydown securities (TEMPS-85) were priced at par to yield 3.50% in 2026.
The $24.4 million of Series 2017C-2 tax-exempt mandatory paydown securities (TEMPS-70) were priced at par to yield 3% in 2025.
The $43.25 million of Series 2017C-3 tax-exempt mandatory paydown securities (TEMPS-45) were priced at par to yield 2.50% in 2024.
The deal is rated BB by Fitch, which assigns the credit a stable outlook.
Citi priced Anchorage, Alaska’s $169.44 million of tax-exempt Series 2017B water revenue refunding bonds and Series 2017B wastewater revenue refunding bonds and taxable Series 2017C wastewater revenue refunding bonds.
The $89.8 million of Series 2017B water revenue refunding bonds were priced to yield from 0.79% with a 3% coupon in 2018 to 2.85% with a 5% coupon in 2037; a 2042 maturity was priced as 5s to yield 3.02% and a 2047 maturity was priced as 5s to yield 3.09%.
The $65.71 million of Series 2017B wastewater revenue refunding bonds were priced to yield from 0.79% with a 3% coupon in 2018 to 2.85% with a 5% coupon in 2037; a 2042 maturity was priced as 5s to yield 3.02% and a 2047 maturity was priced as 5s to yield 3.09%.
The Series 2017C taxable wastewater revenue refunding bonds were priced at par to yield from 1.432% in 2018 to 2.45% in 2023
The deal is rated AA by S&P and Fitch.
In the competitive arena on Tuesday, Irving, Texas, sold $107.65 million of Series 2017 combination tax and hotel occupancy tax revenue refunding bonds.
BAML won the bonds with a true interest cost of 3.00%. The issue was priced to yield from 0.86% with a 5.50% coupon in 2018 to 3.32% with a 3.25% coupon in 2039.
The deal is rated triple-A by Moody’s and S&P.
The Brookland Cayce School District No. 2 of Lexington County, S.C.., sold $100 million of Series 2017C general obligation bonds.
Citi won the bonds with a TIC of 3.10%. The deal was priced to yield from 0.88% with a 5% coupon in 2019 to 3.15% with a 4% coupon in 2040.
The deal is rated Aa1 by Moody’s and AA-minus by S&P.
Madison, Wis., sold three separate competitive offerings totaling $103.72 million.
Robert W. Baird won the $76.9 million of general obligation promissory notes with a TIC of 1.69%. Piper Jaffray won the other two sales, taking the $13.87 million of GO corporate purpose bonds with a TIC of 2.59% and the $12.95 million of taxable GO promissory notes with a TIC of 2.35%.
All three deals are rated Aaa by Moody’s.
In the short-term sector, BAML won the Broward County School District, Fla.’s $125 million of Series 2017 tax anticipation notes with a net interest cost of 0.9354%.
The notes, due June 15, 2018, were priced as 2s to yield 0.90%. The TANs are rated MIG1 by Moody’s.
The yield on the 10-year benchmark muni general obligation rose one basis point to 1.91% from 1.90% on Monday, while the 30-year GO yield rose two basis points to 2.79% from 2.77%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were slightly weaker on Tuesday. The yield on the two-year Treasury rose to 1.40% from 1.39% on Monday, the 10-year Treasury yield gained to 2.24% from 2.23% and the yield on the 30-year Treasury bond increased to 2.81% from 2.80%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 85.4% compared with 85.4% on Monday, while the 30-year muni-to-Treasury ratio stood at 99.4% versus 98.8%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 32,531 trades on Monday on volume of $6.18 billion.