Municipal bonds finished stronger on Wednesday, according to traders, with yields on top shelf maturities falling by as much as three basis points.
Action in the primary market was highlighted by a negotiated deal for California State University and a highly rated competitive sale from Anne Arundel County, Md.
Barclays Capital Markets priced the Trustees of the California State University's $1.39 billion of Series 2016 A & B revenue bonds for institutional investors after holding a one-day retail order period.
The $1.14 billion of Series 2016A bonds were priced to yield from 0.60% with a 2% coupon in 2017 to 3.05% with a 4% coupon in a 2038 maturity. A 2041 maturity was priced as 5s to yield 2.80 and a split 2045 maturity was priced as 4s to yield 3.18% and as 5s to yield 2.85%. The $50 million of Series 2016B-1 were priced as 3s to yield 1.15% in 2047; the maturity has a mandatory tender in 2019. The $100 million of Series 2016B-2 was priced as 4s to yield 1.50% in 2049; the maturity has a mandatory tender in 2021. The $100 million of Series 2016B-3 were priced as 4s to yield 1.80% in 2051; the maturity has a mandatory tender in 2023.
The issue is rated Aa2 by Moody's Investors Service and AA-minus by Standard & Poor's.
Since 2006, CSU has sold about $6 billion of bonds, with the largest issuance occurring last year when it issued $1.1 billion of bonds. The trustees sold a low amount of $309 million in 2013. CSU is composed of 23 campuses and eight off campus centers and is the largest four-year public university system in the United States.
In the competitive arena, Anne Arundel County, Md., sold two issues totaling $285.13 million.
Bank of America Merrill Lynch won the $145.35 million of general obligation refunding Series 2016 consolidated general improvements and consolidated water and sewer bonds with a true interest cost of 1.80%. The $70.85 million of general improvement bonds were priced to yield from 0.54% with a 5% coupon in 2016 to 2.20% with a 3% coupon in 2027. The $74.51 million of water and sewer bonds were priced to yield from 0.54% with a 5% coupon in 2016 to 3.10% with a 3% coupon in 2035.
BAML also won the $139.78 million of Series 2016 GO consolidated general improvements and consolidated water and sewer bonds with a TIC of 3.20%. The $95.31 million of general improvement bonds were priced as 5s to yield from 0.50% in 2016 to 2.75% in in 2042 and 2.78% in 2045. The $44.47 million of water and sewer bonds were priced to yield from 0.50% with a 3% coupon in 2016 to 2.75% with a 5% coupon in 2042; a 2045 maturity was priced as 5s to yield 2.78%
Both issues are rated Aa1 by Moody's and triple-A by Standard & Poor's.
In the negotiated sector, Morgan Stanley priced the Pennsylvania Turnpike Commission's $204.65 million of Series 2016A subordinated revenue bonds to yield from 1.46% with a 3% coupon in 2020 to 3.35% with a 5% coupon in 2036. A term bond in 2041 was priced to yield 3.52% with a 5% coupon and a term bond in 2046 was priced to yield 3.58% with a 5% coupon. The deal is rated A3 by Moody's and A-minus by Fitch Ratings.
Citigroup priced Denton County, Texas' $121.08 million of Series 2016 permanent improvement refunding bonds. The issue was priced to yield from 0.50% with a 3% coupon in 2016 to 3.10% with a 3% coupon in 2034. The bonds are rated triple-A by Moody's and S&P.
BAML priced for retail the state of Hawaii's $306.75 million of GO refunding bonds. The $5.3 million of tax-exempt Series FD bonds were offered as a sealed bid maturing in 2016. The $182.005 million of tax-exempt Series FE bonds were priced to yield from 1.05% with a 5% coupon in 2019 to 2.23% with a 4% coupon in a split 2028 maturity, with the other half not available to retail investors.
The $119.45 million of taxable Series FF bonds were priced for retail to yield from about 35 basis points over the comparable Treasury security in 2020 to approximately 125 basis points over the comparable Treasury security in 2028.
The bonds are rated Aa2 by Moody's and AA by S&P and Fitch.
Puerto Rico Bond Prices Weaken in Secondary
Prices on Puerto Rico debt have been seesawing this week, as investors' attention turns north to Washington, D.C., where Congress is drafting legislation on the future of the Commonwealth.
Among actively traded issues on Wednesday, Puerto Rico Commonwealth Series 2014A GO 8s of 2035 were trading at a high price of 69.783, a low yield of 12.07%, in nine trades totaling $6.2 million. On Tuesday, the GO 8s were trading at a high price of 71.75, a low yield of 11.724%, in 36 trades totaling $37.1 million. On Monday, the 8s were trading at a high price of 70.375, a low yield of 11.964%, in four trades totaling $14.06 million.
The Commonwealth Series 2012A public improvement refunding 5s of 2041 were trading at a high price of 59.00, a low yield of 9.208%, in nine trades totaling $2.93 million. On Tuesday, the refunding 5s were trading at a high price of 59.45, a low yield of 9.137%, in 13 trades totaling $4.11 million. On Monday, the 5s were trading at a high price of 59.25, a low yield of 9.168%, in six trades totaling $3.14 million.
The yield on the 10-year benchmark muni general obligation fell three basis points to 1.75%, from 1.78% on Tuesday, while the 30-year muni yield dipped one basis point to 2.72% from 2.73%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were narrowly mixed. The yield on the two-year Treasury dropped to 0.76%, from 0.79% on Tuesday, while the 10-year Treasury yield inched up to 1.83% from 1.82% and the 30-year Treasury bond yield rose to 2.66% from 2.61%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 95.7% compared with 98.2% on Tuesday, while the 30-year muni to Treasury ratio stood at 102.5% versus 104.7%, according to MMD.
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $4.05 billion, bringing total net assets to $229.12 billion in the week ended March 28, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $3.55 billion to $233.17 billion in the previous week.
The average, seven-day simple yield for the 353 weekly reporting tax-exempt funds increased to 0.02%, ending an almost three-year run at 0.01 percent.
The total net assets of the 953 weekly reporting taxable money funds decreased $904.6 million to $2.548 trillion in the week ended March 29, after an inflow of $2.59 billion to $2.549 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds was unchanged at 0.11%.
Overall, the combined total net assets of the 1,292 weekly reporting money funds decreased $4.95 billion to $2.777 trillion in the period ended March 29, which followed an outflow of $961.6 million to $2.782 trillion.
Yellen: External Threats to U.S. Economy Pose Real Risks
Risks to the U.S. economy from a global economic slowdown are significant and have risen since last year, Federal Reserve Board Chair Janet L. Yellen told the Economic Club of New York on Tuesday.
Answering a question from former Fed Vice Chair Alan Blinder, Yellen said that while the U.S. economy has proven remarkably resilient, the pace of global growth and the prospects for oil prices will have direct and indirect effects on the economy. This may be seen through slower export growth, with financial market concerns that tends to mean a stronger dollar and lower equity prices. These heightened risks do have implications for the U.S. economy, she said.
Yellen noted, however, while the global economic situation poses risks, the net balance of risk was not all to the downside. She said the effects of a global slowdown would be cushioned because of an easing in financial market conditions that has come about because longer-term Treasury yields are down about 40 basis points since September, and because the FOMC has indicated that its sees as a main scenario a slightly more gradual pace of rate increases.
In her address, Yellen said she considered it appropriate for the Fed to move cautiously in adjusting monetary policy and advocated a gradual path to rising interest rates.
