Top-rated municipal bonds ended stronger on Wednesday, according to traders, as yields on some maturities fell by as much as four basis points. U.S. Treasuries surged and equities plunged as oil prices fell to 12-year lows.
In the primary, traders saw some of the week's biggest deals come to market.
Primary Market
Washington state offered two competitive transactions totaling $672.57 million.
JPMorgan Securities won the $528.83 million of Series R-2016B various purpose general obligation refunding bonds with a true interest cost of 2.69%. The issue was priced as 2s to yield 0.30% in 2016 and priced as 5s to yield from 0.94% in 2019 to 2.52% in 2033.
JPMorgan also won the $143.74 million of Series R-2016C motor vehicle tax GO refunding bonds with a TIC of 2.84%. The issue was priced as 2s to yield 0.30% in 2016 and as 5s to yield from 0.94% in 2020 to 2.52% in 2033.
Both series were rated Aa1 by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch Ratings.
Since 2006, Washington has sold about $27.61 billion of bonds, with the most issuance occurring in 2009 and 2010 when it issued $3.32 billion and $3.39 billion, respectively. The Evergreen state is no stranger to the muni market, as it has issued bonds roughly 13 times a year since 2006.
In the negotiated sector, Citigroup priced the New York Triborough Bridge & Tunnel Authority $480.29 million of Series 2016A MTA bridges and tunnels general revenue bonds for retail investors ahead of the institutional pricing on Thursday.
The issue was priced to yield from 0.70% with 3% and 4% coupons in a split 2017 maturity to 2.48% with a 5% coupon in 2031 and from 2.59% with a 5% coupon in 2033 to 2.74% with a 5% coupon in 2036; a 2041 maturity was priced as 5s to yield 2.92% and a 2046 maturity was priced as 5s to yield 2.98%. A 2016 maturity was offered as a sealed bid.
The bonds were rated Aa3 by Moody's and AA-minus by both S&P and Fitch and AA by Kroll Bond Rating Agency.
Loop Capital Markets priced and repriced the District of Columbia Water and Sewer Authority's $385.61 million of Series 2016A public utility subordinate lien revenue refunding bonds to lower yields on most maturities.
Mark T. Kim, D.C. Water's chief financial officer, said that due to the deal being oversubscribed, the authority was able to able to lower yields from two to five basis points on different spots in the curve. Kim noted that D.C. Water also offered a variety of different coupon structures to take advantage of investor interest.
The issue was repriced to yield 1.00% with 2% and 5% coupons in a split 2019 maturity and from 2.31% with a 5% coupon in 2029 to 2.92% with a 5% coupon in 2039. The bonds were rated Aa3 by Moody's, AA by S&P and AA-minus by Fitch.
"We just finished pricing our deal and had a great day in a very volatile market where the 10 year-Treasury fell below 2% and the Dow was off 500 points," Kim said. "Despite the global selloff in equities, we had a strong day in the bond market and were able to take advantage of lower yields. At the end of the day, we received over $850 million of orders. This was a refinancing and D.C. Water was able to generate over 14% of present-value debt service savings, which totals in excess of $55 million for the benefit of D.C. Waters' ratepayers."
Morgan Stanley priced the Massachusetts Development Finance Agency's $169.65 million of Series 2016I revenue bonds for the University of Massachusetts Memorial Health Care Obligated Group.
The bonds were priced to yield from 1.17% with a 5% coupon in 2018 to 3.13% with a 5% coupon in 2031. A 2036 term bond was priced as 5s to yield 3.33%; a split 2031 term was priced as 4s and as 5s to yield 3.97% and 3.48%, respectively; and a 2046 term was priced as 5s to yield 3.53%. The deal was rated triple-B-plus S&P and A-minus by Fitch.
Wells Fargo Securities priced the Aldine Independent School District, Harris County, Texas' $261.76 million of Series 2016 unlimited tax school building and refunding bonds. The issue was priced to yield from 0.79% with a 4% coupon in 2018 to 2.82% with a 5% coupon in 2041; a 2045 maturity was priced as 4s to yield 3.18%. The bonds were backed by the Permanent School Fund guarantee program and rated triple-A by both Moody's and S&P.
Raymond James priced the Rockwall Independent School District, Texas' $107.96 million of Series 2016 unlimited tax school building bonds. The bonds were priced to yield from 0.58% with a 2% coupon in 2017 to 1.98% with a 4% coupon in 2026. The bonds were also priced to yield from 2.74% with a 5% coupon in 2038 to 2.82% with a 5% coupon in 2041. A 2046 term bond was priced to yield 2.90% with a 5% coupon. The deal was backed by the PSF and rated triple-A by Moody's and S&P.
In the competitive arena, the University of Kentucky sold two issues totaling $158.11 million. Both series were rated Aa2 by Moody's and AA by S&P.
Hutchinson, Shockey won the $109.26 million of Series 2016A general receipts bonds with a TIC of 3.60%. The bonds were priced to yield from 2.50% at par in 2027 to 3.15% with a 4% coupon in 2037; a 2039 maturity was priced as 3 1/4s to yield 3.38%, a 2041 maturity was priced as 4s to yield 3.44% and a 2046 maturity was priced as 4s to yield 3.50%.
JPMorgan won the $48.85 million of Series 2016B taxable general receipts bonds with a TIC of 2.86%. Pricing information on the deal was not available.
The Rosemount-Apple Valley Independent School District No. 196, Minn., sold $121.30 million Series 2016A GO school building bonds under the Minnesota School District enhancement program. Bank of America Merrill Lynch won the bonds with a TIC of 2.09%. The issue was priced as 1s to yield 0.54% in 2017 and from 1.08% with a 5% coupon in 2020 to 2.76% with a 3% coupon in 2030. The issue was rated Aa1 by Moody's and AA-plus by S&P.
Morgan Stanley won the Hartford County Metropolitan District, Conn.'s $113.50 million of unlimited tax general obligation bond anticipation notes with a bid of 2% and a premium of $1,419,885, an effective rate of 0.4086%.
On Thursday, the Board of Regents for the University of Houston will offer two deals totaling $285 million. The BoR will sell $101.15 million of Series 2016A tax-exempt consolidated revenue and refunding bonds and $183.86 million of Series 2016B taxable consolidated revenue and refunding bonds. The bonds are rated Aa2 by Moody's and AA by S&P.
Stifel is slated to price Gwinnet County School District, Ga.'s $330 million of GO sales tax bonds on Thursday. The issue is rated triple-A by Moody's and S&P.
Secondary Market
Continued weakness in commodities, led by the fall in oil, pushed equities lower to the benefit of safer munis and Treasuries.
The yield on the 10-year benchmark muni general obligation declined four basis points to 1.71% from 1.75% on Tuesday, while the 30-year muni yield dropped two basis points to 2.68% from 2.70%, according to the final read of Municipal Market Data's triple-A scale.
The yield on the two-year Treasury fell to 0.82% from 0.85% on Tuesday, while the 10-year Treasury yield dropped to 1.97% from 2.02% and the 30-year Treasury bond yield decreased to 2.75% from 2.79%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 86.0% compared to 85.8% on Tuesday, while the 30-year muni to Treasury ratio stood at 97.0% versus 96.1%, according to MMD.
Ramirez: Muni Bond Market Contracted in '15
The U.S. municipal bond market shrank last year, according to a market comment released on Wednesday by Ramirez & Co.
"Despite starting 2015 off strong, calls and redemptions outpaced the $420.8 billion in new issuance for the total muni market, leading to a $4.3 billion net decline through yearend 2015," the report said. "This brings the total market size to $3.50 trillion."
Ramirez said the market expansion seen in the spring of '15 was offset by declines experienced in the summer and winter.
"This trend is expected to continue over the next 30 days into 2016, in which the total muni market is set to contract by $6.99 billion," according to Ramirez. "Of the 10 states with the most outstanding debt, Texas stands to shrink the most (1.0%), followed by Ohio (0.8%), New Jersey (0.7%), Pennsylvania (0.3%), and California (0.3%). Conversely, Florida is set to expand the most (1.2%), followed by Washington (1.1%), and Illinois (0.3%)."
