Top-rated municipal bonds were mixed at mid-session, traders said, as big deals from Energy Northwest and the state of New Jersey came to market.
Traders are wrapping up the last full day of the week and are expecting a quiet half-day of trading on Thursday ahead of the full market close on Friday.
Secondary Trading
The yield on the 10-year benchmark muni general obligation was steady from 1.84% on Tuesday, while the 30-year muni yield was as much as two basis points weaker from 2.78%, according to a read of Municipal Market Data's triple-A scale.
U.S. Treasuries were higher on Wednesday. The yield on the two-year Treasury dropped to 0.87% from 0.89% on Tuesday, while the 10-year Treasury yield fell to 1.91% from 1.93% and the 30-year Treasury bond yield fell to 2.68% from 2.72%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 95.2% compared with 95.8% on Monday, while the 30-year muni to Treasury ratio stood at 102.3% versus 102.6%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 38,651 trades on Tuesday on volume of $10.19 billion.
Primary Market
Bank of America Merrill Lynch priced Energy Northwest’s $493.97 million bond deal on Wednesday.
The $194.85 million of Series 2016A Project 1 electric revenue refunding bonds were priced as 5s to yield 2.04% in 2025 and as 5s to yield 1.60% and 2.15% in a split 2026 maturity. The $89.25 million of Series 2016A Columbia Generating Station electric revenue refunding bonds were priced as 5s to yield 0.79% in 2018, 1.35% in 2021, 1.51% in 2022, 1.70% in 2023, 1.88% in 2024, 2.35% in 2028 and 2.64% in 2032. The $199.08 million of Series 2016A Project 3 electric revenue refunding bonds were priced as 5s to yield 0.79% in 2028, 2.15% in 2026 and 2.27% in 2027.
The $1.29 million of Series 2016B Project 1 taxable electric revenue refunding bonds were priced at par to yield 1.60% in 2019. The $4.09 million of Series 2016B Columbia Generating Station taxable electric revenue refunding bonds were priced at par to yield 1.60% in 2019 and 3.15% in 2028. The $5.43 million of Series 2016B Project 3 taxable electric revenue refunding bonds were priced at par to yield 1.60% in 2019 and 3% in 2027.
The issue is rated Aa1 by Moody’s Investors Service, AA-minus by Standard & Poor’s and AA by Fitch Ratings.
Citigroup priced the state of New Jersey’s $141.66 million of general obligation refunding bonds.
The issue was priced as 5s to yield from 1.30% in 2018 to 2.36% in 2023; a 2017 maturity was offered as a sealed bid.
The deal is rated A2 by Moody’s and A by S&P and Fitch.
Late Tuesday, S&P revised its outlook on New Jersey's GOs to negative from stable. Moody’s also has a negative outlook on the state while Fitch maintains a stable outlook.
The state has not been in the market with GOs since 2014 when it competitively sold $525 million of various purpose GOs. Bank of America Merrill Lynch won those bonds with a true interest cost of 3.32%. That deal had a top yield of 3.73% in 2035. The bonds at that time were rated A1 by Moody’s and A by S&P and Fitch.
Since 2006, New Jersey has sold only about $3 billion of GOs, with the largest issuance occurring in 2009 when it issued $832 million of bonds. The state did not sell GOs in 2011, 2012 or 2015.
Janney Municipal Strategist Alan Schankel said a GO sale is relatively rare for the Garden State, “since the vast majority of state borrowing uses appropriation-backed bonds.”
He cited pension funding as a big minus facing the state.
“Underlying the state’s fiscal challenges and structural imbalance are poorly funded pensions, with the funded ratio dropping to 37.5% as of July 1, 2015, from 42.5% in the prior year,” he wrote in a Wednesday market comment. “New Jersey is among the wealthiest of states, but its recovery has lagged with 2014 GDP growth of only 0.4% compared to 2.2% for the country as a whole.”
Elsewhere in New Jersey, Bayonne issued $69.43 million of insured by Build America Mutual.
RBC Capital Markets priced the Series 2016 bonds in two series. The $66 million of qualified general improvement refunding bonds backed by the state’s Municipal Qualified Bond Act were priced with a top yield of 3.41% with a 5% coupon in 2039. The bonds are rated A3 by Moody’s and AA by S&P.
The $3.43 million of school refunding bonds backed by the School Bond Reserve Act were priced with a top yield of 2.53% with a 4% coupon in 2025. These bonds were rated A2 by Moody’s and AA by S&P.
RBC Capital Markets is expected to price the Wisconsin Housing and Economic Development Authority’s $180 million of Series 2016A AMT and Series 2016B non-AMT homeownership revenue bonds. The issue is rated Aa2 by Moody’s and AA by S&P.
Since 2006, the Wisconsin HEDA has sold about $2.25 billion of debt. The biggest sale came in 2006 when the authority sold $678 million of bonds and the lowest issuance occurred in 2011 when it issued $9 million of debt.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar fell $2.72 billion to $6.34 billion on Wednesday. The total is comprised of $2.34 billion of competitive sales and $3.99 billion of negotiated deals.
