Top-quality municipal bonds finished weaker on Monday, according to traders, with yields on some maturities rising by as much as three basis points.
In the primary on Monday, Citigroup released a pre-marketing scale on Chicago's $500 million deal, according to market sources.
The Series 2015C general obligation refunding bonds were priced on a pre-marketing basis as 5s to yield from 3.60% in 2020 to 4.68% in 2031 with term bonds in 2035 and 2038 yielding 4.875% and 4.95%, respectively, sources said.
This would reflect spreads of 260 basis points over the comparable triple-A rated 10-year muni on Municipal Market Data's triple-A scale and 167 over other triple-B-rated credits. A 22-year bond offered a yield of 4.95%, 240 basis points over the triple-A scale and 151 basis points over triple-B rated credits.
The issue is rated triple-B-plus by Standard & Poor's and Fitch Ratings and A-minus by Kroll Bond Rating Agency. The deal is slated to be priced for institutional investors on Tuesday.
On Thursday, Illinois will competitively sell $480 million of Series of 2016 GOs. The bonds are rated Baa1 by Moody's Investors Service, A-minus by S&P and triple-B-plus by Fitch.
On the higher-rated side, the Illinois Regional Transportation Authority on Wednesday will competitively sell $100 million of Series 2016A GOs. This issue is rated Aa3 by Moody's and AA by S&P and Fitch.
Elsewhere, the Trinity Health Credit Group will be coming to market with a $568 million composite offering with bonds coming from four different issuers.
The deal consists of the Michigan Finance Authority's Series hospital revenue and refunding bonds; the Connecticut Health and Educational Facilities Authority's revenue bonds; the Idaho Health Facilities Authority's Series revenue bonds; and Montgomery County, Md.'s Series revenue bonds.
The issue is expected to be priced by Bank of America Merrill Lynch on Tuesday. The bonds are rated Aa2 by Moody's, AA-minus by S&P and AA by Fitch.
The California Health Facilities Financing Authority will be offering $500 million of Series 2016A revenue bonds for Sutter Health. The deal, which is rated Aa3 by Moody's and AA-minus by S&P and Fitch, is expected to be priced by Morgan Stanley on Wednesday.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Monday rose three basis points to 1.78% from 1.75% on Friday, while the 30-year muni yield also increased three basis points, to 2.73% from 2.70%, according to the final read of Municipal Market Data's triple-A scale.
Treasuries were narrowly mixed. The yield on the two-year Treasury fell to 0.92% from 0.94% on Friday, while the 10-year Treasury yield increased to 2.16% from 2.13% and the 30-year Treasury bond yield rose to 2.96% from 2.92%.
The 10-year muni to Treasury ratio was calculated on Monday at 82.5% compared with 82.2% on Friday, while the 30-year muni to Treasury ratio stood at 92.4% versus 92.5%, according to MMD.
Last Week's Most Active Sectors
Revenue bonds comprised 56.02% of new issuance in the week ended Jan. 8, up from 54.71% in the previous week, according to Markit. General obligation bonds comprised 36.76% of total issuance, down from 37.60%, while taxable bonds made up 7.22%, down from 7.68%.
Some of the most actively traded issues by type were in California, New Jersey and Texas.
In the GO bond sector, the California 5s of 2026 traded 34 times. In the revenue bond sector, the New Jersey State Transportation Trust Fund Authority 5s of 2045 traded 46 times. And in the taxable bond sector, the University of Texas 3.852s of 2046 traded 21 times.
BlackRock: Munis on Top in '15
Munis outperformed both Treasuries and corporates in December and were the best-performing fixed-income asset class of 2015, according to a market comment released on Monday by BlackRock.
"The municipal market outperformed both Treasuries and corporate bonds in December, propelled once again by favorable supply/demand dynamics," said the report, authored by Peter Hayes, head of BlackRock's Municipal Bonds Group, James Schwartz, head of Municipal Credit Research, and Sean Carney, head of Municipal Strategy.
The S&P Municipal Bond Index returned 0.71% in December and 3.32% for 2015, making it the leading fixed income asset class of the year. Long maturities led in both periods, and high yield notched favorable performance despite a drag from Puerto Rico, the report said.
"Munis outperformed both Treasuries and corporate bonds in December, having them appear pricier pre-tax, but still very attractive after tax. In 2015, we saw $5 billion in inflows for every 1% of positive performance," BlackRock said. "The asset class' unique characteristics continue to attract broad investor interest, which should bode well for performance."
Yvette Shields contributed to this report.
