Top-rated municipal bonds finished mixed on Wednesday, according to traders, after the Federal Open Market Committee voted unanimously to raise its fed funds target rate by 25 basis points to between 0.50% and 0.75%.
The yield on the 10-year benchmark muni general obligation was unchanged from 2.37% on Tuesday, while the yield on the 30-year dropped basis points to 3.16% from 3.18%, according to the final read of Municipal Market Data's triple-A scale.
The FOMC said it still expects gradual normalization of rates and that near-term risks to the outlook seem "roughly balanced." Though inflation has risen and expectations have "moved up considerably," it remains short of the Fed's 2% target.
The Federal Reserve's Summary of Economic Projections, or dot plot, was changed from the one issued three months ago, with three 25 basis point rate hikes projected for next year.
"We have not seen a huge reaction so far, but definitely a bit more selling," one New York trader said. "Possibly assuming a slightly more hawkish Fed (three rate hikes versus two for 2017) is negative for rates in general."
The FOMC participants' current assessment of appropriate monetary policy -- the level picked by the most members -- anticipates a rate between 0.50% and 0.75% at the end of 2016, between 1.25% and 1.50% at the end of 2017, and between 1.75% and 2% at the end of 2018, with a 3% rate longer term. The expectation for 2019 varied, with no more than three participants targeting any one amount.
"The statement gives nothing away about the Fed's view of possible future changes to fiscal policy, but recognizes the considerable increase in market-based measures of inflation expectations since the election," said Brian Coulton, Chief Economist at Fitch Ratings. "The upward revision to the 2017 funds rate projection suggests greater confidence that the Fed will be able to pick up the pace of policy normalization in 2017 and 2018."
U.S. Treasuries turned mixed after the Fed hike. The yield on the two-year Treasury rose to 1.23% from 1.17% on Tuesday; ahead of the rate rise, the two-year was yielding 1.16%. The 10-year Treasury yield gained to 2.52% from 2.48% on Tuesday, while the yield on the 30-year Treasury bond was unchanged from 3.15%.
The 10-year muni to Treasury ratio was calculated at 94.0% on Wednesday compared to 95.6% on Tuesday while the 30-year muni to Treasury ratio stood at 100.3% versus 101.1%, according to MMD.
Primary Market
The new issue market was quiet on Wednesday.
In the competitive arena, the Douglas County School District, Omaha Public, Neb., sold $141 million of Series 2016 general obligation bonds.
Bank of America Merrill Lynch won the bonds with a true interest cost of 3.51%.
The issue was priced to yield from 2.40% with a 5% coupon in 2025 to 3.62% with a 4% coupon in 2040.
The deal is rated Aa1 by Moody's Investors Service and AAA by S&P Global Ratings.
Since 2009, the school district has sold about $538.9 million of debt, with the most issuance prior to this year occurring in 2015 when it also sold $141 million of bonds. The district did not come to market in 2011 or 2013.
No major negotiated deals came to market on Wednesday.
Barclays Capital is expected to price the Chicago Board of Education's $500 million of dedicated capital improvement tax bonds sometime this week.
There is no exact date for the sale, with the timing on the deal dependent on market conditions.
The bonds are rated A by Fitch Ratings and BBB by Kroll Bond Rating Agency.
Additionally, Citigroup is expected to price the New York State Housing Finance Agency's $223 million of affordable housing revenue bonds. The issue is comprised of Series 2016H climate bond certified green bonds and Series 2016I revenue bonds. The deal is rated Aa2 by Moody's.
Ziegler is expected to price the Tarrant County Cultural Education Facilities Finance Corp., Texas' $130 million of Series 2016 A&B retirement facilities revenue bonds. And Jefferies is expected to price the Westchester Tobacco Asset Securitization Corp., N.Y.'s $178.83 million of taxable Series 2016A tobacco settlement senior bonds and taxable Series 2016C tobacco settlement subordinate bonds.
