Top-quality municipal bonds finished steady to stronger on Thursday, according to traders, as several new deals were priced in the primary.
Meanwhile, a report showed that municipal debt of big oil-producing states is suffering from crude oil price volatility. Oil price-sensitive states have seen their muni bonds underperform the wider muni market, Markit analyst Neil Mehta wrote.
Over the past year there has been a correlation between oil prices and risk associated with the municipal bonds of oil producing states, according to analysis from
"To showcase the impact of crude oil prices on municipal bond spreads, a comparison can be made between the average municipal bond spread (5% coupon, 10-year maturity, AAA/AA rated) for the top 10 oil producing states versus non-oil producing states," Mehta wrote.
"The municipal bond spread difference between oil producing states and non-oil producing states peaked at around 20 basis points as WTI crude oil prices fell below $30 a barrel in January. The spread difference was as low as six basis points last July when oil prices were above $50 a barrel," he wrote.
The biggest oil producers in January were Texas, North Dakota, California and Alaska. While Texas produced about double the oil than that of its nearest rivals, the Lone Star State's diversified economy means it has less reliance on crude production for revenue.
On the other hand, Alaska and North Dakota are less diversified and more exposed to oil price swings from a budgetary standpoint, the report said, and have seen their muni bond spreads react in tandem with the changes in crude oil prices.
"Alaska has seen the spread on its 10-year general obligation munis widen significantly so far this year," Mehta wrote, "which was compounded by a ratings downgrade from S&P Global ratings in January [with] the agency citing the long-term effects of low oil prices on the economy."
Secondary Market
The yield on the 10-year benchmark muni general obligation on Thursday rose two basis points to 1.62% from 1.60% on Wednesday while the 30-year muni yield was flat from 2.45%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger. The yield on the two-year Treasury dropped to 0.88% from 0.90% on Wednesday, while the 10-year Treasury yield declined to 1.84% from 1.86% and the yield on the 30-year Treasury bond decreased to 2.63% from 2.68%.
The 10-year muni to Treasury ratio was calculated at 87.9% on Thursday compared to 85.1% on Wednesday, while the 30-year muni to Treasury ratio stood at 93.0% versus 91.3%, according to MMD.
Primary Market
Bank of America Merrill Lynch priced the New York Metropolitan Transportation Authority's $582.69 million of Series 2016B dedicated tax green fund and refunding climate certified bonds for institutions after a one-day retail order period.
The $409.95 million of Subseries 2016B-1 green bonds were priced to yield from 0.45% with a 2% coupon in 2016 to 2.49% with a 5% coupon in 2036. A 2046 term bond was priced as 5s to yield 2.70%, a 2051 term was priced as 5s to yield 2.85% and a 2056 term was priced as 5s to yield 2.90%.
The $172.74 million of Subseries 2016B-2 refunding green bonds were to yield from 1.82% with a 5% coupon in 2026 to 2.12% with a 4% coupon in 2030. The bonds were also priced to yield from 2.26% with a 5% coupon in 2032 to 3.03% with a 3% and 2.60% with a 5% coupon in a split 2039 maturity.
The deal is rated AA by both S&P Global Ratings and Fitch Ratings.
Roosevelt & Cross priced for institutions the Dormitory Authority of the State of New York's $206.48 million of Series E, F, G, H, I and J revenue bonds under the school districts revenue bond financing program after a retail order period on Wednesday.
The $79.68 million of Series 2016E bonds were priced to yield from 0.72% with a 2% coupon in 2017 to 2.64% with a 5% coupon in 2036; a 2041 maturity was priced at par to yield 3.00% and a 2044 maturity was priced at par to yield 3.00%. This series is rated A-plus by S&P and AA-minus by Fitch except for the 2041 and 2044 maturities which are insured by Build America Mutual and rated AA by S&P.
The $41.71 million of Series 2016F bonds were priced to yield from 0.67% with a 2% coupon in 2017 to 2.57% with a 5% coupon in 2036; a 2041 maturity was priced as 3s to yield 3.13% and a 2043 maturity was priced as 3s to yield 3.15%. This series is rated AA by S&P and AA-minus by Fitch.
The $36.87 million of Series 2016G bonds were priced to yield from 0.68% with a 2% coupon in 2017 to 2.31% with a 5% coupon in 2031. This series is rated AA-minus by S&P and Fitch.
The $21.37 million of Series 2016H bonds were priced to yield from 0.68% with a 2% coupon in 2017 to 2.31% with a 5% coupon in 2031. This series is rated Aa3 by Moody's Investors Service and AA-minus by Fitch.
The $10.07 million of Series 2016I bonds were priced to yield from 0.84% with a 2% coupon in 2017 to 2.71% with a 2.50% coupon in 2031. This series is rated A-plus by S&P and AA-minus by Fitch except for the 2019-2031 maturities which are insured by Assured Guaranty Municipal and rated AA by S&P.
The $16.80 million of Series 2016J bonds were priced to yield from 0.84% with a 2% coupon in 2017 to 2.36% with a 5% coupon in 2029. This series is rated A-plus by S&P and AA-minus by Fitch except for the 2020-2030 maturities which are insured by AGM and rated AA by S&P.
Morgan Stanley priced and then repriced the Illinois Finance Authority and the Iowa Finance Authority's $222.89 million of health facilities revenue bonds for UnityPoint Health.
The $45.71 million Illinois Finance Authority bonds were repriced to yield from 0.74% with a 4% coupon in 2017 to 1.86% with a 5% coupon in 2025. A term bond in 2046 was priced to yield 3.35% with a 4% coupon.
The $177.18 million Iowa Finance Authority bonds were repriced to yield from 0.55% with a 2% coupon in 2016 to 3.14% with a 4% coupon in 2037. A 2046 term bond was priced to yield 3.30% with a 4% coupon. The deal is rated Aa3 by Moody's and AA-minus by Fitch.
In the competitive arena, the Clark County School District, Nev., sold $315.94 million of bonds in three separate sales.
JPMorgan Securities won the $188.84 million of Series 2016A limited tax general obligation refunding bonds with a true interest cost of 1.73%. The deal was priced as 5s to yield from 1.22% in 2021 to 1.90% in 2025.
Citigroup won the $92.61 million of Series 2016B limited tax GO refunding bonds additionally secured by pledged revenues with a TIC of 1.93%. The bonds were priced to yield 0.70% with a 3% coupon in 2017. The bonds were also priced to yield from 1.36% with a 5% coupon in 2022 to 2.10% with a 5% coupon in 2027.
Citi also won the $34.50 million of Series 2016C limited tax GO mid-term bonds with a TIC of 1.62%. The bonds were priced to yield from 0.70% with a 3% coupon in 2017 to 1.97% with a 5% coupon in 2026.
All three deals are rated A1 by Moody's and AA-minus by S&P.
Tax-Exempt Money Market Funds See Outflows
Tax-exempt money market funds experienced outflows of $2.55 billion, bringing total net assets to $212.39 billion in the week ended May 16, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $1.10 billion to $214.94 billion in the previous week.
The average, seven-day simple yield for the 296 weekly reporting tax-exempt funds rose to 0.06% from 0.05% in the previous week.
The total net assets of the 894 weekly reporting taxable money funds decreased $16.29 billion to $2.477 trillion in the week ended May 17, after an inflow of $10.54 billion to $2.494 trillion the week before.
The average, seven-day simple yield for the taxable money funds was unchanged from 0.10% in the prior week.
Overall, the combined total net assets of the 1,190 weekly reporting money funds decreased $18.84 billion to $2.690 trillion in the period ended May 17, which followed an inflow of $9.44 billion to $2.709 trillion.
