Top-rated municipal bonds were mostly steady on Monday, though yields rose a basis point on four maturities, according to traders, as the bond market got set for about $10.23 billion of new supply this week.
Secondary Market
The 10-year benchmark muni general obligation yield increased one basis point to 2.42% on Monday from 2.41% on Friday, while the yield on the 30-year GO was unchanged at 3.18%, according to a final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were mixed at Monday's close. The yield on the two-year Treasury was slightly lower to 1.30% from 1.31% on Friday, while the 10-year Treasury yield was flat at 2.49%, and the yield on the 30-year Treasury bond was higher to 3.10% from 3.08%.
On Monday, the 10-year muni to Treasury ratio was calculated at 97.1% compared to 96.9% on Friday, while the 30-year muni to Treasury ratio stood at 102.7%, versus 103.2%, according to MMD.
Primary Market
This week's calendar is composed of $7.69 billion of negotiated deals and $2.54 billion of competitive sales.
The state of California is scheduled to hit the market with the largest bond deal of 2017 to date when it sells $2.45 billion of various purpose general obligation bonds for institutions on Tuesday. Some market sources said if the deal sees good demand, it could be upsized – perhaps to as much as $3.5 billion.
The deal was priced for retail on Monday. The $519.295 million of various purpose GO bonds were priced for retail to yield 1.41% with a 5% coupon in 2020 to 2.40% with a 5% coupon in 2024. A term bond in 2046 was priced in a split maturity to yield 3.97% with a 4% coupon and 3.52% with a 5% coupon. The 2017 maturity was offered as a sealed bid.
The $1.93 billion of various purpose GO refunding bonds were priced for retail to yield from 1.18% with a 3% coupon, a 4% coupon and a 5% in a triple split maturity in 2019 to 3.89% with a 4% coupon and 3.47% with a 5% coupon in a split 2038 maturity. No retail orders were taken in the third split of the 2020 maturity, the second split of the 2022 maturity, the 2023 maturity or the second split of the 2024 maturity. The 2018 maturity was offered as a sealed bid. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
On Monday, JPMorgan Securities held a second day of a two-day retail order period on the New York City Transitional Finance Authority's $800 million of future tax secured subordinate refunding bonds ahead of the institutional pricing on Tuesday.
On Monday, the TFA's $761.725 million of Fiscal 2017 Series C future tax secured tax-exempt subordinated bonds were priced for retail to yield from 1.23% with 4% and 5% coupons in a split 2019 maturity to 3.64% with a 3.50% coupon and 3.59% with a 4% coupon in a split 2034 maturity. A 2018 maturity was offered as a sealed bid; no retail orders were taken in the 2030-2032 maturities.
The TFA's $38.275 million of Fiscal 2017 Series D future tax secured tax-exempt subordinated bonds were priced for retail to yield from 1.23% with a 3% coupon in 2019 to 3.64% with a 3.50% coupon in 2034. The 2017 and 2018 maturities were offered as sealed bids.
On Friday, the TFA's $761.73 million of Fiscal 2017 Series C future tax secured tax-exempt subordinated bonds were priced for retail to yield from 1.19% with 4% and 5% coupons in a split 2019 maturity to 3.59% with a 3.50% coupon and 3.54% with a 4% coupon in a split 2034 maturity. A 2018 maturity was offered as a sealed bid; no retail orders were taken in the 2030-2032 maturities.
The TFA's $38.28 million of Fiscal 2017 Series D future tax secured tax-exempt subordinated bonds were priced for retail to yield from 1.19% with a 3% coupon in 2019 to 3.59% with a 3.50% coupon in 2034. The 2017 and 2018 maturities were offered as sealed bids.
The deal is rated Aa1 by Moody's Investors Service and triple-A by S&P Global Ratings and Fitch Ratings.
With lots of investor cash on the sidelines, a New York trader said those two large deals should bring some much-needed supply into the market.
The deals' pricing should also set a new benchmark and provide some volatility, supply, and opportunity to move the market from its recent slump.
"Everyone is talking about higher rates, and percentages are not attractive," the New York trader said on Monday afternoon. "Supply is starting to creep in and people are buying new issues, but they are apprehensive about higher rates and possible changes in the tax laws."
On Monday, he said the percentage of municipal to Treasuries was below 80%, and the seven-year was below 90%.
"You will get a real feel from the TFA and Cal deals," he said. Both deals will see strong demand, he said, and the California deal could be oversubscribed.
In the competitive arena, the state of Maryland will be selling almost $1.2 billion of tax-exempt and taxable general obligation bonds in three separate sales on Wednesday.
All three deals are rated triple-A by Moody's S&P and Fitch.
Prior Week's Actively Traded Issues
Revenue bonds comprised 58.51% of new issuance in the week ended March 3, down from 58.83% in the previous week,
Some of the most actively traded issues by type in the week ended March 3 were from Maryland, New York, and Alabama.
In the GO bond sector, the Baltimore County, Md., 3s of 2018 were traded 29 times. In the revenue bond sector, the New York Municipal Water Finance Authority 4s of 2039 were traded 52 times. And in the taxable bond sector, the Alabama Port Authority 4.722s of 2040 were traded 38 times.
Previous Week's Top Underwriters
The top negotiated and competitive underwriters of last week included Bank of America Merrill Lynch, RBC Capital Markets, Morgan Stanley, Siebert Cisneros Shack Co., and Piper Jaffray, according to Thomson Reuters data.
In the week of Feb. 26 to March 4, BAML underwrote $1.1 billion, RBC $531.6 million, Morgan Stanley $425.3 million, SCSCO $392.1 million and Piper Jaffray $277.2 million.
