Prices of top-shelf municipal bonds ended steady to stronger on Friday, according to traders, with yields on most maturities unchanged to one basis point weaker.
Muni traders were clearing the decks after seeing almost $8 billion of new supply come to market during the week.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Friday finished steady from 2.16% on Thursday, while the yield on the 30-year GO was off one basis point to 3.10% from 3.11%, according to the final read of Municipal Market Data's triple-A scale.
On Friday, Aug. 21, the 10-year muni yield stood at 2.13% while the 30-year muni was at 3.00%.
Treasury prices were mixed on Friday, with the yield on the two-year Treasury note rising to 0.72% from 0.68% on Thursday, while the 10-year yield rose to 2.18% from 2.17% and the 30-year yield decreased to 2.89% from 2.91%.
The 10-year muni to Treasury ratio was calculated on Friday at 98.7% versus 99.7% on Thursday, while the 30-year muni to Treasury ratio stood at 106.5% compared to 107.2%, according to MMD.
Primary Market
A revised $7.8 billion of new bond deals came to market during the week, according to Thomson Reuters.
Topping the week's calendar was the biggest sale so far this year - the New Jersey Economic Development Authority's $2.2 billion of tax-exempt and taxable school facilities construction bonds and refunding bonds.
Bank of America Merrill Lynch priced the deal, which was rated A3 by Moody's Investors Service and A-minus by Standard & Poor's and Fitch Ratings.
Moody's rates the N.J. EDA one notch below the state's A2 general obligation rating, citing that contract payments backing the securities are subject to annual legislative appropriation. The state was downgraded to A2 by Moody's in April because of ongoing budget and pension funding challenges.
The deal was designed to bring in $500 million of new money, according to the New Jersey Department of the Treasury, while also convert $242 million of floating-rate notes from short-term variable-rates to fixed-rates and to finance the termination of interest-rate swap agreements.
Meanwhile, Morgan Stanley priced California's $1.93 billion of various purpose general obligation and GO refunding bonds. The deal was rated Aa3 by Moody's, AA-minus by S&Ps and A-plus by Fitch Ratings.
State Treasurer John Chiang said the sale included the issuance of $1.38 billion in refunding bonds to refinance about $1.54 billion of existing debt, resulting in savings of more than $270 million. He added that the state's next GO sale is planned for October.
"Recent credit upgrades have increased the market's confidence in the state's credit worthiness and individual and institutional investors alike continued to demonstrate faith in California," Chiang said in a statement.
California was last upgraded by Moody's in June 2014, by S&P in July, and by Fitch in February.
Some participants noted the marked difference between the New Jersey and California bond deals.
The California sale benefited from the rating upgrades, Janney Municipal Strategist Alan Schankel said in a market comment.
In contrast to the Garden State's recent multiple downgrades, the Golden State enjoyed a tailwind from two upgrades this year, Schankel said, adding that the contrast was evident in the pricing of the issues.
In the New Jersey sale, the 10-year bond was priced to yield 4.37%, while in the California sale the 10-year was priced to yield 2.49%.
BMO Capital Markets priced the Chicago Park District's $139 million of GOs. The deal was rated AA-plus by S&P, AA-minus by Fitch and AA by Kroll Bond Rating Agency. The issue was well received, according to a market source, who said the deal was from 2 1/2 to 5 times oversubscribed.
Bank of America Merrill Lynch priced the Kentucky Economic Development Finance Authority's $232.84 million of senior revenue bonds for the Next Generation Kentucky Information Highway project. The deal was rated Baa2 by Moody's and BBB-plus by Fitch.
Barclays Capital priced the Connecticut Health and Educational Facilities Authority's $325 million of Series L revenue bonds for Quinnipiac University. The issue was rated A3 by Moody's and A-minus by S&P.
Barclays also priced Guam's $411 million of Series 2015D business privilege tax refunding bonds. The issue was rated A by S&P and A-minus by Fitch.
In the competitive arena, the Cobb-Marietta Coliseum and Exhibit Hall Authority, Ga., sold $377 million of Series 2015 taxable revenue bonds for the Atlanta Braves' new stadium. Wells Fargo Securities won the issue with a true interest cost of 4.39%. The deal was rated triple-A by Moody's, S&P and Fitch.
PRASA Deal Debated
Municipal bond market participants spent the week watching the latest twists and turns in the saga of the Puerto Rico Aqueduct and Sewer Authority's $750 million bond offering.
A published report had said the commonwealth decided to cancel the sale of senior lien revenue bonds because of global market conditions and a lack of investor appetite for the securities. However, no official word was released on a change to the status of the sale.
The PRASA deal had been expected to price the week of Aug. 17, but was pushed back and placed on the day-to-day new issue calendar. A New York source told The Bond Buyer that he was told by Bank of America Merrill Lynch that the deal was still listed on the day-to-day calendar.
The commonwealth faces a deadline for the commonwealth's fiscal stability and economic development plan and a Puerto Rico Electric Power Authority (PREPA) restructuring plan. The commonwealth has also asked the U.S. Supreme Court for a ruling to overturn a ban that prevents Puerto Rico public agencies from restructuring.
On Monday, Government Affairs Secretary Jesús Manuel Ortiz told Caribbean Business "the process to achieve the issuance continues. We are confident that we can finalize it as soon as possible. We are, right now, working to close the transaction."
On Tuesday, however, it was reported PRASA executive president Alberto Lázaro told the local newspaper El Vocero the deal was being evaluated and remains day-to-day.
"The issuance won't be this week and we will continue as early as the first week of September or a little bit later," he said in El Vocero.
He added that PRASA was talking to Banco Popular about getting an extension on a $90 million payment the authority owes on Aug. 31, which would have been provided by the bond sale. He said while the money was available, it would better for authority's cash flow position if an extension could be worked out. On Thursday, he said that PRASA was talking with a banking group about refinancing the $90 million loan.
According to a published report, Lazaro said he was still hopeful the authority would be able to issue bonds, but added that PRASA was analyzing a private placement as an alternative.
"The negotiations have been going forward, and we are very positive that we will achieve something, not necessarily with Banco Popular, but with a consortium of banks," Lazaro was quoted by Reorg Research as saying.
Lazaro said that while he hoped a public bond sale could still happen as soon as "the beginning of September," he added there were other alternatives, such as a private transaction.
"If underwriters can eventually complete the PRASA sale," said Ted Hampton, Moody's Investors Service Vice President, "it may signal a return to some degree of market access that would help maintain liquidity."
Municipal Bond Funds See Outflows
Municipal bond funds saw outflows in the latest week, according to Lipper data released on Thursday. Funds which report weekly saw $344.563 million of outflows in the week ended Aug. 26, after seeing inflows of $43.656 million in the previous week, Lipper reported.
The latest inflow brings to 17 out of 35 weeks this year that the funds have seen a cash infusion. Inflows for the year to date are still in the green, totaling $2.663 billion.
The four-week moving average remained negative at $149.516 million after being in the red at $81.719 million in the previous week. The moving average has now been negative for 14 weeks in a row. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds also experienced outflows, losing $29.224 million in the latest week, after seeing inflows of $289.019 million in the previous week. Intermediate-term funds saw outflows of $44.327 million after seeing outflows of $6.790 million in the prior week.
Exchange traded funds saw inflows of $61.284 million, after experiencing outflows of $19.800 million in the previous week.
And high-yield muni funds saw outflows of $40.317 million in the latest reporting week, after seeing an inflow of $182.789 million the previous week.
In the past 18 weeks, high-yield funds have seen outflows 12 times totaling $1.815 billion and inflows six times totaling $322.011 million.
The Week's Most Actively Quoted Issues
Puerto Rico and the District of Columbia were some of the most actively quoted names in the week ended Aug. 28, according to data released by Markit.
On the bid side, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 13 unique dealers. On the ask side, the District of Columbia hospital revenue 4s of 2040 were quoted by 21 dealers. And among two-sided quotes, the Puerto Rico commonwealth GO 8s of 2035 were quoted by eight dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues in the week ended Aug. 28 were in New Jersey, California and Georgia, according to Markit.
In the revenue bond sector, the New Jersey Economic Development Authority 4s of 2024 were traded 133 times. In the GO bond sector, the California 5s of 2045 were traded 76 times. And in the taxable bond sector, the Cobb-Marietta Coliseum and Exhibit Hall Authority, Ga. 4 1/2s of 2047 were traded 32 times, Markit said.
