The municipal market was firmer by as much as eight to 10 basis points in the belly of the curve Tuesday and two or three basis points elsewhere, as Morgan Stanley accelerated pricing on an upsized $750 million on behalf of California’s Sutter Health.
“The tone is better than it’s been, but there isn’t much of a calendar to prove things this week,” said Jay Alpert, executive vice president and manager of sales and trading at M.R. Beal & Co. “We’re still combating the mutual fund outflows, but [it’s] not like it’s raining bonds.”
Alpert said the light supply made it easier to see price action in the secondary market. He observed yields down as much as six basis points in the intermediate maturities.
“The light supply is not putting any inordinate pressure on the market and there are manageable flows in terms of bid-wanteds,” Alpert said. “There’s better retracement and that’s a positive step over the last prior couple of weeks.”
In new-issue activity Tuesday, Morgan Stanley priced a total of $750 million of hospital revenue bonds from two conduit issuers on behalf of Sutter Health.
The deal was scheduled for retail pricing Tuesday and institutional pricing Wednesday, but pricing was accelerated duriing Tuesday’s gains.
The total size of the deal was increased by $175 million from the originally planned $575 million.
Yields on the $475 million California Health Facilities Finance Authority series ranged from 3.45% with a 5% coupon in 2016 to 6.25% with a 6% coupon in 2042. The bonds are callable at par in 2020.
Yields on the $275 million California Statewide Communities Development Authority series ranged from 3.45% with a 5% coupon in 2016 to 6.20% with a 6% coupon in 2042. The bonds are callable at par in 2020. The credit is rated Aa3 by Moody’s Investors Service and an equivalent AA-minus by Standard & Poor’s and Fitch Ratings.
The Municipal Market Data triple-A 10-year scale dipped five basis points Tuesday to 3.37%, the 20-year scale declined nine basis points to 4.62%, and the scale for 30-year bonds fell three basis points to 4.83%.
“The belly of the curve is showing pretty substantial gains,” a trader in San Francisco said. “I’m really not seeing that anywhere else, to that degree anyway, but it’s firmer all through the curve. Maybe two or three basis points better on the long end, but in that belly, it’s six to eight, maybe a little more.”
Tuesday’s triple-A muni scale in 10 years was at 100.3% of comparable Treasuries and 30-year munis were at 107.1%, according to MMD. Meanwhile, 30-year tax-exempt triple-A general obligation bonds were at 113.9% of the comparable London Interbank Offered Rate.
Treasuries were firmer Tuesday. The benchmark 10-year note was quoted near the end of the session at 3.32% after opening at 3.41%. The 30-year bond was quoted near the end of the session at 4.48% after opening at 4.55%. The two-year note was quoted near the end of the session at 0.57% after opening at 0.60%.
“We are a little insulated from the Treasury downdraft, and if Treasuries find a bid, that should lend more strength to us,” a trader in Chicago said. “The product is trying to find a bottom in the last week or so.”
The Treasury Department auctioned $35 billion of two-year notes with a 5/8% coupon at a 0.65% yield, a price of 99.95. The bid-to-cover ratio was 3.47%. The Federal Reserve banks also bought $697.4 million for their own account in exchange for maturing securities.
Elsewhere in the new-issue market Tuesday, JPMorgan won a $190 million competitive sale of Fairfax County, Va., public improvement and refunding bond issue, at a true interest cost of 3.71%.
Yields range from 0.75% with a 5% coupon in 2013 to 4.35% with a 4.25% coupon in 2027. Bonds maturing in 2012, 2017, 2018, from 2020 through 2024, and from 2028 through 2031 were not formally re-offered. The bonds are callable at par in 2021.
The bonds are rated triple-A by all three major rating agencies.
Goldman, Sachs & Co. priced $154.7 million of so-called springing-lien revenue bonds for Florida’s Mid-Bay Bridge Authority in two series.
Bonds from the $144.0 million Series A mature in 2034 and 2040, yielding 7.375% and 7.5% respectively, both with 7.25% coupons. The bonds are callable at par in 2021. Bonds from the $10.7 million Series B mature in 2016 and 2027, yielding 5% and 7% respectively, both priced at par. The bonds are callable at par in 2021.
Still to come this week is a $300 million revenue bond sale from the Dormitory Authority of the State of New York on behalf of Columbia University, which is set to be priced by Morgan Stanley, and a $300 million Port Authority of New York and New Jersey revenue deal in the competitive market.
In economic data released Tuesday, consumer confidence improved faster in January than economists estimated, rising to an eight-month high of 60.6. Economists forecast an increase to 54.3 from a December level of 53.3.
Consumer confidence has averaged 84.31 the past 10 years in the index, which has a base reading of 100 that reflects survey responses in 1985.
Christine Albano contributed to this column.