Municipals were stronger on Wednesday, traders said, with yields on some top-quality maturities weakening by as much as nine basis points.
Treasuries surged as stocks slumped on worries about the economic situation in China and the military one in North Korea. Late in the session, the Federal Reserve released the minutes from its last monetary policy meeting.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell eight basis points to 1.77% from 1.85% on Tuesday, while the 30-year muni yield lost seven basis points to 2.70% from 2.77%, according to the final read of Municipal Market Data's triple-A scale. Yields on some intermediate maturities fell by as much as nine basis points.
Treasuries were higher as equities fell on geopolitical concerns.
North Korea carried out a successful test of a nuclear weapon, while in China weak economic data caused stocks to fall, which prompted the government to weaken the currency.
The Federal Open Market Committee released minutes of its Dec. 15-16 meeting that showed the decision to raised rates was a "close call" for some voters. At the meeting, the FOMC voted to raise the Fed Funds rate by 25 basis points to a new target range of 0.25% to 0.50%.
The yield on the two-year Treasury declined to 0.99% from 1.02% on Tuesday, while the 10-year Treasury yield dropped to 2.17% from 2.24% and the 30-year Treasury bond yield decreased to 2.94% from 3.00%.
In late trade, the Dow Jones Industrial Average was off about 300 points while the Nasdaq Composite Index lost around 80 points and the S&P 500 Index fell nearly 40 points.
The 10-year muni to Treasury ratio was calculated on Wednesday at 81.4% compared with 82.4% on Tuesday, while the 30-year muni to Treasury ratio stood at 91.9% versus 92.1%, according to MMD.
Puerto Rico Update
"Puerto Rico's infrastructure finance authority, known as PRIFA, missed their Jan. 1 debt payment," Markit said in a comment released on Wednesday. "According to the trustee for PRIFA's series 2005 B and 2006 bonds, they did not receive sufficient funds from PRIFA to make the payments. The authority was downgraded to default on Tuesday based on the missed payments, however insurers Ambac and FGIC will make the debt service payments on the portion of 2005 C bonds that they insure, $10.3 million and $6.4 million, respectively."
Puerto Rico honored its most senior GO debt by making the January debt service payments in full.
"This resulted in a rally for Puerto Rico general obligation bonds, with the 8% 2035 maturity trading as high as $73.25 on Jan. 5," Markit said.
In response, Markit said that prices on PRIFA bonds fell to as low as $7 as a result of the default. In contrast, Puerto Rico 8% GO prices rallied to $73.5.
Primary Market
In the primary, issuers in Massachusetts and Colorado came to market with the week's biggest competitive sales while a large negotiated offering was priced.
Wells Fargo Securities priced the New Jersey Healthcare Facilities Authority's $190.07 million of Series 2016A bonds for the Princeton Healthcare System.
The issue was priced to yield from 0.50% with a 2% coupon in 2016 to 3.24% with a 5% coupon in 2034; a split 3039 maturity was priced at par to yield 3.875% and as 5s to yield 3.41%.
The issue was rated Baa2 by Moody's Investors Service and triple-B by Fitch Ratings.
In the competitive arena, the Massachusetts School Building Authority sold $150 million of Series 2016A senior dedicated sales tax bonds.
Wells Fargo Securities won the bonds with a true interest cost of 3.46%. The deal was priced as 5s to yield from 0.50% in 2016 to 2.81% in 2042; a 2045 term bond was priced as 5s to yield 2.83%.
The bonds were rated Aa2 by Moody's and AA-plus by Standard & Poor's and Fitch.
On the short-term slate, Colorado competitively sold $339 million of Series 2015B education loan program tax and revenue anticipation notes, which are due June 29. The issue is rated MIG-1 by Moody's and SP1-plus by S&P.
Multiple groups won sections of the TRANs. Wells Fargo won $154 million of the deal and priced the notes as 2s to yield 0.24%. Details on other winners were not available.
Meanwhile, the Board of Regents of the University of Texas system came to market with the first part of two negotiated deals totaling about $450 million.
Bank of America Merrill Lynch priced the Board's $206.04 million of Series 2016B revenue financing system green bonds for institutions a day after the retail order period. The issue was structured with step coupons that increase over the life of the deal. The deal was priced as 5s to yield 1.95% in 2026, as 4s to yield 2.94% and at par to yield 2.50% in a split 2036 maturity, and at par to yield 2.50% in 2046.
BAML is also set to price the Board's $250 million of Series 2016A taxable revenue financing system bonds. Both series are rated triple-A by Moody's, S&P and Fitch.
On Thursday, BAML is expected to price the South Carolina Public Service Authority's $382 million of revenue obligation Series 2016A tax-exempt refunding bonds.
Since 2006, Santee Cooper has sold about $9.8 billion of debt. The most issuance occurred in 2013 and 2015 when it offered $1.85 billion and $1.40 billion of bonds, respectively. It offered the least amount of debt in 2007 and 2010 when it sold $440.5 million and $591.1 million, respectively.
BAML is also slated to price the city of Tallahassee, Fla.'s $150 million of Series 2016A project healthcare facilities revenue bonds for Tallahassee Memorial Healthcare Inc. The issue is rated Baa1 by Moody's.
Stifel is set to price Orange County, Calif.'s $334.31 million of taxable Series 2016A pension obligation bonds on Thursday. The issue is rated AA by S&P and Fitch.
And JPMorgan Securities is expected to price on Thursday the KU Central Development Corp.'s $333.18 million of Series 2016 lease revenue bonds, which are being issued through the Wisconsin Public Finance Authority. The issue is rated Aa2 by Moody's.
