Prices of top-rated municipal bonds finished mixed on Wednesday, traders said, after the Federal Reserve left rates unchanged. Yields on munis ended flat to two basis points higher.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Wednesday was flat at 2.29% from Tuesday, while the yield on the 30-year GO rose two basis points to 3.27% from 3.25%, according to the final read of Municipal Market Data's triple-A scale. Yields on some shorter maturities were unchanged to down two basis points.
Treasury prices were lower for most of the day before turning mixed after the Fed's statement. The yield on the two-year Treasury note fell to 0.66% from 0.69% on Tuesday, while the 10-year yield was unchanged at 2.31% and the 30-year yield rose to 3.10% from 3.05%.
The 10-year muni to Treasury ratio was calculated on Wednesday at 99.3% versus 98.9% on Tuesday, while the 30-year muni to Treasury ratio stood at 106.5% compared to 106.6%, according to MMD.
The Fed left its Fed Funds target rate at 0%-0.25% for the 52nd week in a row.
"June's statement was surprisingly unchanged in language," according to a comment from Janney Capital Markets after the Fed release. "Within the context of guidance, the FOMC's language was entirely unchanged, with committee members apparently not becoming 'reasonably confident' that inflation will head back towards the 2% mark, a puzzling constant that seems to contradict dots implying two rate hikes this year. Regardless, it'll be quite a long time until we actually hit that inflation finish line."
Primary Market
Goldman, Sachs priced and repriced the New York City Transitional Finance Authority's $750 million of Series S-2 Fiscal 2015 building aid revenue bonds for institutions after holding a two-day retail order period on Monday and Tuesday.
For institutions, the bonds were priced to yield from 0.34% with 1.75% coupon in 2016 to 3.47% with a 5% coupon in 2036; a 2040 term bond was priced as 5s to yield 3.62%, a 2041 term was priced as 5s to yield about 3.64%, a 2042 term was priced as 4s to yield 4.01% and a 2044 term bond was priced as 4s to yield about 4.022%.
On Day 2 of the retail order period, the bonds were priced to yield from 1.13% with 2% and 5% coupons in a split 2018 maturity to 3.45% with a 5% coupon in 2035; and a 2044 term bond was priced as 4s to yield about 4.029%. The 2016 and 2017 maturities were offered as sealed bids; no retail orders were taken in the 2028 through 2030 maturities, in the 2032 through 2034 maturities or in the 2040 or 2042 maturities.
The BARBs were rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Since 1999, the HDC has sold about $18 billion of bonds, with the most issuance coming in 2-13 and 2014 when it sold $1.77 billion and 1.93 billion, respectively. The least amount of issuance occurred in 1995 and 1997, when it issued $242 million and $304 million, respectively.
In the short-term competitive note sector, Houston, Texas sold $210 million of series 2015 tax and revenue anticipation notes. The TRANs were rated SP1-plus by S&P and F1-plus by Fitch.
The issue was won by eight groups: Barclays Capital took $30 million with a coupon of 1% and a premium of $211,800, an effective rate of 0.29%; Citi took $10 million with a coupon of 2.25% and a premium of $195,104, an effective rate of 0.29%; Citi also took $10 million with a coupon of 2.25% and a premium of $194,801, an effective rate of 0.29%; FTN Financial Capital Markets took $10 million with a coupon of 1% and a premium of $70,500, an effective rate of 0.29%; FTN also took $10 million with a coupon of 1% and a premium of $70,451, an effective rate of 0.29%; JPMorgan took $40 million with a coupon of 2% and a premium of $679,600, an effective rate of 0.29%; TD Securities took $50 million with a coupon of 2.25% and a premium of $974,000, an effective rate of 0.29%; and Wells Fargo Securities took $50 million with a coupon of 2% and a premium of $849,500, an effective rate of 0.29%.
Wayne County Set for Sale
Wayne County, Mich., is preparing to come to market with a $186.7 million note sale on Thursday.
The taxable limited-tax general obligation notes will be priced by Bank of America Merrill Lynch and will have a Dec. 1, 2017 final maturity and an optional redemption in December 2016 at 100.50%. S&P assigned a rating of SP-1 to the notes, citing a "strong capacity to pay principal and interest." The note borrowing is one the county makes regularly to cover late property tax collections owed to its local units.
Public Financial Management is municipal advisor and Axe & Ecklund is note counsel. The county also hired Orrick, Herrington & Sutcliffe as special bankruptcy counsel.
Bond documents and an online investor roadshow both contain discussions on bankruptcy in the sections on investor risks, marking the first time the county has formally warned investors of the possibility of bankruptcy.
The county has tried to assuage potential investor concerns with various enhancements, Deputy Treasurer Christa McLellan said in an email.
The notes are secured by a pledge of the county's full faith and credit, and expected to be paid from 2014 delinquent property taxes, plus interest and fees, that were unpaid as of June 1. The county will use proceeds from the note deal to pay its local units. Detroit accounts for 61% of the county's net receivable tax revenues.
Prior to the final maturity of the notes, the county will charge back to the local units any 2014 delinquent taxes which still remain unpaid. There was a total of $192.1 million in unpaid taxes, according to the county.
The notes are also secured by a note reserve fund with an initial balance of $18.7 million, 10% of the par amount. The county treasurer is required to deposit all pledged tax revenues into a debt retirement trust on a weekly basis, according to the investor presentation.
The offering documents also feature Orrick's legal opinion that the revenue backing the notes would likely be exempt from the automatic stay in the event that the county filed for Chapter 9.
Since 1999, the county has issued around $236 million of notes and about $855 million of bonds, according to Thomson Reuters. Before this week, most of the note issuance occurred in 2009 when it sold $104 million and most of the bond issuance took place in 2014 when it offered $207 million.
