The municipal market improved by another basis point yesterday as negative headlines from Europe initiated a flight to quality.
“Activity was light to moderate and there was an even balance between supply and demand in the secondary market,” said a trader in New York, who attributed the continued strength of the market to negative headlines from Greece and “an extraordinarily strong Treasury market.”
The California Department of Water Resources took advantage of lower yields by increasing the size of its power supply refunding deal, twice, adding nearly 50% to its original size. The issue was originally set for $2 billion, but after a strong retail period on Monday and Tuesday in which $1.27 billion was sold, the state treasurer’s office increased the issue size to $2.97 billion.
The DWR deal features bifurcated maturities from 2011 through 2022. Yields ranged from 0.92% in the short end to 3.80% in 2022. The 2011 debt was repriced from a yield of 0.95% on Tuesday.
Book-runners Morgan Stanley, De La Rosa & Co., and JPMorgan led 25 selling group members on the deal, which carried ratings of Aa3 from Moody’s Investors Service and AA-minus from Standard & Poor’s and Fitch Ratings.
Elsewhere, Massachusetts brought a $450 million competitive Build America Bonds deal to market. Morgan Stanley won the bid on the GOs, which carried ratings of Aa1 by Moody’s, AA by Standard & Poor’s, and AA-plus by Fitch. Coupons on the 2024 maturity were priced 92 basis points above the 10-year Treasury rate at 4.48%, while the 2029 maturity bond was priced at 4.91%, a spread of 52 basis points to comparable Treasuries.
Treasuries firmed dramatically across the curve early in the session but moderated in the afternoon. The benchmark 10-year yield, which ended Tuesday at 3.60%, traded as low at 3.51% but then closed at 3.55%. The two-year yield, which closed Tuesday at 0.96%, ended yesterday at 0.88%, while the 30-year Treasury, which closed at 4.42% on Tuesday, traded at a five-month low of 4.33% early in the session and closed at 4.39%.
Munis were looking comparatively cheap as Tuesday’s triple-A muni scale in 10 years was at 82.0% of comparable Treasuries, the highest, level since late January, according to Municipal Market Data. “Ratios are trading close to 2010 highs right now, and I think that’s encouraging some relative value buyers to step into the market,” a trader said.
The MMD triple-A scale yielded 2.95% in 10 years yesterday, down from Tuesday’s 2.96% and much stronger than the late March level of 3.09%.
In other issuance, the final pricing of Tampa’s $199.46 million of health system revenue bonds, which hit the market Tuesday, was released by Morgan Stanley. The bonds mature from 2010 to 2023, with yields ranging from 1.40% in 2011 to 4.50% in 2023. They are rated Aa3 by Moody’s and AA-minus by Fitch.
Citi priced a $210 million deal for the Long Island Power Authority. The issue is part of a larger $410 million electric system revenue deal. This portion is the issuer’s first taxable Build America Bond. The bonds mature from 2020 out to 2041, with yields ranging from 4.86% in 2020 to 5.85% in 2041. The bonds were rated A3 by Moody’s, A-minus by Standard & Poor’s, and A by Fitch.
The Massachusetts Housing Finance Agency sold $250 million of revenue bonds after a two-day retail period in which $200 million was sold. The deal was senior-managed by Bank of America Merrill Lynch and rated AA3 by Moody’s and AA-Minus by Fitch. Yields were from 0.32% in 2010 to 4.25% in 2022.