Municipal bonds finished steady on Wednesday, according to traders, who manned their desks for the last full trading day of 2015.
Thursday's session will end at 2 p.m. Eastern and the market will be closed on Friday, Jan. 1, 2016, for the New Year's celebration. The market will reopen on Monday.
Puerto Rico bonds were trading mixed after the announcement that the commonwealth would default on some debt payments next week while making payments on others.
Secondary Market
The yield on the 10-year benchmark muni general obligation was unchanged from 1.93% on Tuesday, while the 30-year yield was steady from 2.82%, according to the final read of Municipal Market Data's triple-A scale.
Treasury bonds were little changed on Wednesday. The yield on the two-year Treasury slipped to 1.08% from 1.09% on Tuesday, while the 10-year Treasury yield was unchanged from 2.30% and the 30-year Treasury yield dipped to 3.03% from 3.04%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 82.6% compared with 83.7% on Tuesday, while the 30-year muni to Treasury ratio stood at 92.1% versus 92.7%, according to MMD.
Puerto Rico Bonds Trading Mixed
Puerto Rico will default on $37.3 million of debt payments due on Monday, Gov. Alejandro Garcia Padilla said on Wednesday. The Commonwealth will default on a $35.9 million Puerto Rico Infrastructure Financing Authority payment and a $1.4 million Puerto Rico Public Finance Corp. payment, the governor told reporters.
Puerto Rico will make other payments, Garcia Padilla said, including one for $328.7 million on guaranteed general obligation bonds. Puerto Rico will also make the following payments: $9.9 million on Government Development Bank notes; $92 million on Public Buildings Authority bonds; $11.4 million on PRIFA bonds; $15.4 million COFINA; $1.7 million University of Puerto Rico bond; $9.5 million Puerto Rico Convention Center District Authority bond; $101.7 million Highways and Transportation Authority bond; $13.9 million for the retirement system; and $10.1 million for the Industrial Development Corp.
In secondary trading on Wednesday, the benchmark Puerto Rico Commonwealth Series 2014A general obligation 8s of 2035 were trading higher, according to the Municipal Securities Rulemaking Board's EMMA website. The GO 8s of 2035 were trading at 73 cents on the dollar to yield 11.501% in two trades totaling $4.5 million. On Tuesday, the 8s were trading at a high price of 72 cents on the dollar, a low yield of 11.67%, in 10 trades totaling $25.1 million.
The Commonwealth's Series 2012A GO public improvement refunding bonds were also trading higher. The 5s of 2041 were trading at a high price of 62 cents on the dollar, a low yield of 8.746%, in 21 trades totaling $1.71 million. On Tuesday, the 5s of 2041 were trading at a high price of 61.59 cents on the dollar, a low yield of 8.804%, in 23 trades totaling $1.64 million.
The Puerto Rico Commonwealth Infrastructure Financing Authority's 2006 special tax revenue 5s of 2046 were trading lower on Wednesday. The 5s of 2046 were trading at a high price of 10.50 cents on the dollar, a low yield of 47.594%, in 13 trades totaling $635,000. On Tuesday, the 5s of 2046 were trading at a high price of 11.08 cents on the dollar, a low yield of 45.111%, in six trades totaling 795,000, according to EMMA.
The PRIFA 2005 special tax revenue Series B 5s of 2041 were also lower. The 5s of 2041 were trading at a high price of 10.70 cents on the dollar, a low yield of 46.714%, in 13 trades totaling $395,000. On Tuesday, the 5s of 2041 were trading at a high price of 10.783 cents on the dollar, a low yield of 46.362%, in 20 trades totaling $1.08 million, according to EMMA.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 24,738 trades on Tuesday on volume of $3.09 billion.
Primary Market
In was another very quiet day in the primary as there were no bond or note deals on the calendar until next week.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $439.1 million to $5.53 billion on Wednesday. The total is comprised of $2.65 billion competitive sales and $2.88 billion of negotiated deals.
Muni Bond Issuance Slowed in Second Half
"We had record municipal bond issuance in the first half of 2015," according to John Mousseau, executive vice president at Cumberland Advisors. "With over $217 billion issued – a 45% increase over last year – 2015 would have been a record year for issuance had the second half of the year been as large as the first."
Mousseau said most of this issuance was to refinance older bonds with 2015 call dates.
"There was great pressure on issuers to refinance this debt, since this year's interest-rate levels would have saved issuers over 1% (100 basis points) on much of the 5%-plus yield debt issued in 2005," Mousseau wrote. "The bulk of 2005's issuance was front-loaded into the first part of that year; hence, the call dates on this debt became effective during the first half of the year."
