Munis shrug off higher Treasury rates as market gulps down supply

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The municipal market and its participants were peppered with deals during what will go down as the week’s busiest day.

Demand for new municipal paper held steady, two New York traders said, even as the 10-year Treasury crept up to 3% on Wednesday amid a flurry of Treasury auctions, refueling some nervousness over rising interest rates. They said investors were flush with cash as the seasonal reinvestment season arrived, with heavy June 1 and July 1 calls, maturities, and redemptions on the horizon.

“The only thing you hear from everybody is they all have cash, but there’s not a lot of deals,” one New York trader said. “The Street is light.”

The last time the 10-year Treasury bond hit 3% there was some “consternation,” another New York trader said. “This time the 10-year came back to the support level of 3% and it’s still there,” he said at 3 p.m. Wednesday.

The Dormitory Authority of the State of New York deal was one of the deals that did well, as yields were reduced.

Raymond James & Associates priced DASNY’s $585.795 million of Series 2018 A, B, C, D and E school districts financing program revenue bonds for institutional investors on Wednesday after a retail order period on Tuesday.

The Series A bonds are rated Aa3 by Moody’s Investors Service and AA-minus by Fitch Ratings, with the exception of the 2033-2034, 2038, 2043 and 2047 maturities which are insured by Assured Guaranty Municipal Corp. and rated AA plus by S&P Global Ratings.

The Series B bonds are rated Aa2 by Moody’s and AA-minus by Fitch; the Series C bonds are rated AA by S&P and AA-minus by Fitch; and the Series D bonds are rated Aa1 by Moody’s and AA-minus by Fitch.

The Series E bonds are insured by AGM and rated AA by S&P,, with the exception of the 2019 maturity which is uninsured and rated Aa3 by Moody’s and AA-minus by Fitch.

JPMorgan priced the largest deal of the week — Energy Northwest’s $632.77 million of taxable and tax-exempt electric revenue refunding bonds. The deal is rated Aa1 by Moody’s, AA-minus by S&P and AA by Fitch.

Since 2008, Energy Northwest has sold about $7.99 billion of securities, with the most issuance occurring in 2011 when it sold $1.1 billion. The Pacific Northwest issuer did not come to market at all in 2013.

Bank of America Merrill Lynch priced the Health and Educational Facilities Board of the town of Greenville, Tenn.’s, $540.36 million of hospital revenue bonds for Ballad Health. The deal is rated Baa1 by Moody’s, A-minus by S&P and A by Fitch.

Goldman Sachs priced the Commonwealth of Massachusetts’ $347.39 million of GO refunding bonds. The deal is rated Aa1 by Moody’s, AA by S&P and AA-plus

There were two notable sales in the competitive arena. The Maryland Department of Transportation sold $130 million of consolidated transportation bonds, which were won by Bank of America Merrill Lynch with a true interest cost 2.77%. The deal is rated Aa1 by Moody’s, AAA by S&P and AA-plus by Fitch.

The Virginia Public Schools Authority sold $116.66 million of special obligation school financing bonds for Prince William County, which were won by Citi with a TIC of 2.97%. The deal is rated triple-A by the three big rating agencies.

Wednesday’s bond sales

New York:
Click here for the DASNY $586M deal

Washington State:
Click here for the Energy Northwest $632M deal

Click here for the Maryland DOT $150M deal

Click here for the Virginia Public Schools Authority $116M deal

Click here for the Health and Educational Facilities Board of Greenville, Tenn., $540M deal

Click here for the Commonwealth of Massachusetts’ $347M deal

Secondary market
Municipal bonds were mixed on Wednesday, according to a late read of the MBIS benchmark scale.

Benchmark muni yields rose by no more than one basis point in 22 maturities, as the three-through nine-year spots on the curve decreased by less than one basis point, with the two-year maturity unchanged.

Things were different with the high-grade munis as 26 maturities decreased by no more than two basis points. The 18-through 20-year maturities nudged up by less than a basis point, while the 17 year maturity was flat.

Municipals were weaker according to Municipal Market Data’s AAA benchmark scale, which showed the 10-year general obligation muni yield one basis point higher and the 30-year muni maturity two basis points higher. It also said that the 2019 through 2026 maturities were unchanged.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 81.3% while the 30-year muni-to-Treasury ratio stood at 94.8%, according to MMD.

NYC TFA to sell $1.3B of bonds
The New York City Transitional Finance Authority announced details of its upcoming sale of $1.275 billion of tax-exempt and taxable future tax secured subordinate bonds.

The NYC TFA intends to competitively sell about $1.1 billion of Fiscal 2018 Series C tax-exempt and taxable fixed rate bonds on Tuesday, May 15.

Proceeds from the bond sale will be used to fund capital projects.

The deals will be sold in the following subseries:

  • $122,090,000 Subseries C-1 tax-exempt bonds
  • $329,220,000 Subseries C-2 tax-exempt bonds
  • $398,690,000 Subseries C-3 tax-exempt bonds
  • $137,400,000 Subseries C-4 taxable bonds
  • $112,600,000 Subseries C-5 taxable bonds

During the week of May 28, TFA plans to sell $100 million of tax-exempt variable rate demand bonds.
TFA also intends to sell $75 million of tax-exempt index rate bonds through a private placement, bringing the total bond sale to $1.275 billion.

Treasury auction
The Treasury Department auctioned $31 billion of 10-year notes with a 2 7/8% coupon at a 2.995% high yield, a price of 98.969628.

The bid-to-cover ratio was 2.56.

Tenders at the high yield were allotted 50.13%. All competitive tenders at lower yields were accepted in full.

The median yield was 2.950%. The low yield was 2.890%.

The markets were watching the auction closely to see if the high yield would exceed 3%, something that hasn’t happened in nearly 7 years.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

Gary E. Siegel contributed to this report.

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Primary bond market Secondary bond market Energy Northwest New York State Dormitory Authority Commonwealth of Massachusetts State of Maryland Virginia Public School Authority