Municipal bonds closed steady to weaker on Monday, with yields on some maturities as much as two basis points higher, according to traders, as they braced for $15.4 billion of issuance this week.

Secondary Market

The yield on the 10-year benchmark muni general obligation rose two basis points to 1.73% from 1.71% on Friday, while the yield on the 30-year was steady at 2.56%, according to a final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were stronger. The yield on the two-year Treasury fell to 0.81% from 0.83% on Friday, the 10-year Treasury yield fell to 1.76% from 1.79% and the yield on the 30-year Treasury bond decreased to 2.52% from 2.56%.

On Monday, the 10-year muni to Treasury ratio was calculated at 89.3% compared to 95.6% on Friday, while the 30-year muni to Treasury ratio stood at 91.2 % versus 100.2%, according to MMD.

Primary Market

In the only notable deal hitting the screens for institutions on Monday, JPMorgan priced the North Carolina Capital Facilities Finance Agency's $328.605 million of revenue refunding bonds for Duke University. The bonds were priced to yield 1.89% with a 5% coupon in 2026 and to yield from 3.04% with a 4% coupon in 2039 to 2.77% with a 5% coupon in 2042. A term bond in 2044 was priced to yield 3.09% with a 4% coupon and 2.79% with a 5% coupon in a split maturity. The deal is rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings.

The State of Connecticut's $650 million of general obligation bonds and green bonds for retail investors on Monday, ahead of institutional pricing on Tuesday, with Morgan Stanley joining Wells Fargo as bookrunner. The $585 million of GO bonds were priced for retail to yield from 1.26% with a 4% coupon in 2019 to 2.74% with a 5% coupon in 2030. The bonds were also priced for retail to yield from 3.24% with a 4% coupon in 2033 to 3.53% with a 3.375% coupon in 2036. The 2017 and 2018 maturities were offered as sealed bids.

The $65 million of GO green bonds were priced to yield from 2.81% with a 5% coupon in 2031 to 2.88% with a 5% coupon in 2032. The deal is rated Aa3 by Moody's and AA-minus by both S&P and Fitch Ratings.

On Sept. 23, Connecticut State Treasurer Denise L. Nappier modified the assignment of lead banker for the upcoming sale of general obligation bonds in light of recently disclosed actions by Wells Fargo and sanctions imposed by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency.

Treasurer Nappier, citing "ongoing investigations associated with Wells Fargo, including the potential distraction and uncertainty for the bank," added Morgan Stanley as co-bookrunner for this bond sale alongside Wells Fargo. The addition of Morgan Stanley, Treasurer Nappier said, was "made in an abundance of caution to help ensure the success of the sale." Wells Fargo had been assigned as the sole bookrunner prior to the recent revelations of regulatory actions against the bank.

In addition, Treasurer Nappier's staff currently is reviewing the State's other business relationships with Wells Fargo, including its holdings of securities through its pension and trust funds, and is closely monitoring ongoing investigations.

Jefferies priced the New York Metropolitan Transportation Authority's $632.025 million of revenue refunding bonds also for retail investors on Monday, ahead of institutional pricing on Tuesday. The bonds were priced for retail to yield from 1.12% with a 5% coupon in 2019 to 1.53% with a 5% coupon in 2022 and to yield 1.89% with a 4% coupon in 2022. The bonds were also priced to yield from 2.17% with a 5% coupon in 2026 to 3.30% with a 3.125% coupon in 2035. The 2017 and 2018 maturities were offered as sealed bids. The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.

With such a robust calendar, the remaining days this week will feature lots of action. It all gets started on Tuesday, which is likely to be the busiest day of the week. In addition to the Connecticut and MTA sales, the Texas Transportation Commission's $600 million of highway improvement GO bonds is scheduled to come to market Tuesday. Wells will price the deal, which is rated triple-A by Moody's, S&P and Fitch.

Morgan Stanley is on the docket to run the books on the Commonwealth Financing Authority, Pa.'s $758.81 million of federally taxable revenue bonds.

In the competitive arena California, which has sold the most out of all issuers with $7.27 billion as of the end of the third quarter this year, will be adding to that total with three separate sales on Tuesday that will total $1.65 billion of various purpose GO and GO refunding bonds.

The largest sale will consist of $815 million and $575.755 million issued of tax-exempt bonds and $255 million of taxables. The deals are rated Aa3 by Moody's, AA-minus by S&P and Fitch Ratings.

Previous Week's Top Underwriters

The top negotiated and competitive underwriters of last week included Bank of America Merrill Lynch, JPMorgan Securities, Citigroup, Goldman Sachs and Morgan Stanley, according to Thomson Reuters data. In the week of Oct. 9-Oct. 15, BAML underwrote $1.95 billion, JP Morgan $1.24 billion, Citi $1.08 billion, Goldman $898 million and Morgan Stanley $794 million.

Prior Week's Actively Traded Issues

Revenue bonds comprised 57.85% of new issuance in the week ended Oct. 12, up from 57.47% in the previous week, according to Markit. General obligation bonds comprised 36.63% of total issuance, down from 36.79%, while taxable bonds made up 5.52%, down from 5.74%.

Some of the most actively traded issues by type were from Puerto Rico, Massachusetts and Illinois. In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 were traded 16 times. In the revenue bond sector, the Massachusetts Development Finance Agency 4s of 2036 were traded 38 times. And in the taxable bond sector, the Illinois 5.1s of 2033 were traded 18 times.

 

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