Prices of top-rated municipal bonds were mostly steady at mid-session, traders said, with yields on most maturities remaining unchanged.
The municipal bond market saw more supply hit the primary market on Wednesday ahead of the Federal Open Market Committee's monetary policy statement.
Secondary Market
The yield on the 10-year benchmark muni general obligation was flat from 2.29% on Tuesday, while the yield on the 30-year GO was unchanged from 3.25%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were lower on Wednesday with the yield on the two-year Treasury note rising to 0.73% from 0.69% on Tuesday, while the 10-year yield increased to 2.36% from 2.31% and the 30-year yield rose to 3.09% from 3.05%.
The 10-year muni to Treasury ratio was calculated on Tuesday at 98.9% versus 98.0% on Monday, while the 30-year muni to Treasury ratio stood at 106.6% compared to 106.5%, according to MMD.
Primary Market
Goldman, Sachs priced the New York City Transitional Finance Authority's $750 million of Series S-2 Fiscal 2015 building aid revenue bonds for institutions after holding a two-day retail order period on Monday and Tuesday.
For institutions, the bonds were priced to yield from 1.13% with 2% and 5% coupons in a split 2018 maturity to 3.48% with a 5% coupon in 2036; a 2040 term bond was priced as 5s to yield 3.63%, a 2041 term was priced as 5s to yield about 3.65%, a 2042 term was priced as 4s to yield 4.02% and a 2044 term bond was priced as 4s to yield about 4.029%. The 2016 and 2017 maturities were offered as sealed bids.
On Day 2 of the retail order period, the bonds were priced to yield from 1.13% with 2% and 5% coupons in a split 2018 maturity to 3.45% with a 5% coupon in 2035; and a 2044 term bond was priced as 4s to yield about 4.029%. The 2016 and 2017 maturities were offered as sealed bids; no retail orders were taken in the 2028 through 2030 maturities, in the 2032 through 2034 maturities or in the 2040 or 2042 maturities.
The BARBs were rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Since 1999, the HDC has sold about $18 billion of bonds, with the most issuance coming in 2-13 and 2014 when it sold $1.77 billion and 1.93 billion, respectively. The least amount of issuance occurred in 1995 and 1997, when it issued $242 million and $304 million, respectively.
Fed Ahead
"Traders will likely be looking for any detail regarding timing of a rate increase as second quarter economic data has showed signs of a rebound," according to a comment from Interactive Data.
"Although no rate change is expected, the markets expect indications from the Fed Chair that a rate hike before year end is likely," MMD Senior Market Analyst Randy Smolik wrote in a Wednesday market comment. "The Street will also be studying the new forecasts from the Fed to gain insight how quickly the next rate hike could occur. Currently, the street expects a 25 basis point rate hike after the September FOMC meeting."
Many think Wednesday's statement will pave the way for a small rate rise at the next FOMC meeting.
"The Fed will effectively use this meeting to prep the guns for a September hike in interest rates. [Fed Chair Janet] Yellen is going to want to hold the market's hand through the entire process to avoid a repeat of the panicked response to the 'Taper Tantrum' and the recent sell-off in Treasuries," said Luke Bartholomew, Investment Manager at Aberdeen Asset Management. "Meanwhile the market is going to want validation that they're right to be thinking the first hike will come in September."
Some think language change in the Fed statement will be a clue as to what happens next.
"Everyone will hang on Yellen's every word, but the Fed will probably reveal their intentions through their 'dot plot'. As long as there are no changes to the 2015 and 2016 dots, then we are full steam ahead for September," said Bartholomew.
Some also think any change in language in the Fed statement will be a clue as to what happens next.
"Recent FOMC statements have used the phrase 'reasonably confident that inflation will move back to its 2% objective;' a change to 'inflation appears to be moving back to its 2% objec-tive' would indicate to the markets that that criterion is being met," according this week's commentary from Janney Capital Markets. "Changing the language on inflation would open the door to a first rate hike at any meeting, though our target remains September. Failure to change the language, on the other hand, would make it tougher to execute a liftoff in September if and when the inflation numbers support that return to 2%."
Wayne County Set for Sale
Wayne County, Mich., is preparing to come to market with a $186.7 million note sale on Thursday.
The taxable limited-tax general obligation notes will be priced by Bank of America Merrill Lynch and will have a Dec. 1, 2017 final maturity and an optional redemption in December 2016 at 100.50%. S&P assigned a rating of SP-1 to the notes, citing a "strong capacity to pay principal and interest." The note borrowing is one the county makes regularly to cover late property tax collections owed to its local units.
Public Financial Management is municipal advisor and Axe & Ecklund is note counsel. The county also hired Orrick, Herrington & Sutcliffe as special bankruptcy counsel.
Bond documents and an online investor roadshow both contain discussions on bankruptcy in the sections on investor risks, marking the first time the county has formally warned investors of the possibility of bankruptcy.
The county has tried to assuage potential investor concerns with various enhancements, Deputy Treasurer Christa McLellan said in an email.
The notes are secured by a pledge of the county's full faith and credit, and expected to be paid from 2014 delinquent property taxes, plus interest and fees, that were unpaid as of June 1. The county will use proceeds from the note deal to pay its local units. Detroit accounts for 61% of the county's net receivable tax revenues.
Prior to the final maturity of the notes, the county will charge back to the local units any 2014 delinquent taxes which still remain unpaid. There was a total of $192.1 million in unpaid taxes, according to the county.
The notes are also secured by a note reserve fund with an initial balance of $18.7 million, 10% of the par amount. The county treasurer is required to deposit all pledged tax revenues into a debt retirement trust on a weekly basis, according to the investor presentation.
The offering documents also feature Orrick's legal opinion that the revenue backing the notes would likely be exempt from the automatic stay in the event that the county filed for Chapter 9.
Since 1999, the county has issued around $236 million of notes and about $855 million of bonds, according to Thomson Reuters. Before this week, most of the note issuance occurred in 2009 when it sold $104 million and most of the bond issuance took place in 2014 when it offered $207 million.
