Top shelf municipal bonds were slightly stronger at mid-session, according to traders, as several large water and wastewater deals from issuers in Texas and California came to market.
Ramirez & Co. priced and repriced Austin's $251.86 million of Series 2016 water and wastewater system revenue refunding bonds.
The issue was repriced as 5s to yield from 0.92% in 2019 to 1.19% in 2021 and from 1.70% in 2025 to 2.56% in 2037. A 2041 maturity was priced to yield 2.67% and a 2045 maturity was priced to yield 2.72%.
Proceeds will refund 2006 and 2007 debt for savings and take out $190 million in commercial paper.
Based on rates available on March 28, the refunding could produce $12.1 million in present value savings or 10.94%, according to Austin Treasurer Art Alfaro. "Actually, I think rates have gotten even better since then," Alfaro said.
The deal is rated Aa2 by Moody's Investors Service, AA by S&P Global Ratings and AA-minus by Fitch Ratings.
Since 2006, Austin has sold about $7 billion of bonds including the current issue, with the largest issuance occurring in 2015 when it offered $1 billion of securities. It sold the least amount of debt in 2007 when is issued $287 million of bonds.
In the competitive arena, the city and county of San Francisco's Public Utilities Commission sold over $308 million of bonds in two separate deals, one of which was a large green bond offering.
JPMorgan Securities won the $240.58 million of Series 2016A wastewater revenue green bonds with a true interest cost of 3.21%. The issue was priced to yield from 1.24% with a 5% coupon in 2023 to 2.70% with a 4% coupon in 2040; a 2042 maturity was priced as 4s to yield 2.75% and a 2046 maturity was priced as 4s to yield 2.79%.
JPMorgan also won the $67.82 million of Series 2016B wastewater revenue bonds with a TIC of 3.21%. Pricing information was not immediately available. Both deals are rated Aa3 by Moody's and AA by S&P.
The California Department of Water Resources sold $107.74 million of Series AV Central Valley Project water system revenue bonds.
Morgan Stanley won the deal with a TIC of 3.37%. Pricing information was not immediately available. The deal is rated Aa1 by Moody's and triple-A by S&P.
And later this afternoon, the city and county of Denver's Board of Water Commissioners is competitively selling $152.16 million of water bonds in two separate issues. The offerings consist of $90.50 million of Series 2016A master resolution water revenue bonds and $61.67 million of Series 2016B master resolution water refunding revenue bonds. The deals are rated triple-A by Moody's, S&P and Fitch.
On Wednesday, Chicago is coming to market with a $546 million sale of tax-exempt and taxable and second lien water revenue bonds. PNC Capital Markets is expected to price the deal. The issue is rated AA by Kroll Bond Rating Agency.
Also on Wednesday, the Alameda Corridor Transportation Authority, Calif., will be coming to market with the biggest deal of the week. Bank of America Merrill Lynch is set to price the authority's $662 million of Series 2016 A&B tax-exempt subordinate and second subordinate lien revenue refunding bonds.
The Series A bonds are rated Baa2 by Moody's and BBB-plus by S&P and Fitch. The Series B bonds are rated Baa2 by Moody's and BBB by S&P and Fitch.
Also from California, Loop Capital Markets is expected to price the Los Angeles International Airport's $293 million of Series 2016A subordinate revenue bonds on Wednesday. The deal, which is subject to the alternative minimum tax, is rated A1 by Moody's and AA-minus by S&P and Fitch.
Morgan Stanley is set to price the state of Oregon's $306 million of Series 2016 D, E, F, G and H Article XI-M seismic projects and Article XI-Q state projects general obligation bonds on Wednesday.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $1.03 billion to $14.38 billion on Tuesday. The total is comprised of $6.55 billion of competitive sales and $7.83 billion of negotiated deals.
Secondary Market
The yield on the 10-year benchmark muni general obligation was as much as one basis point weaker from 1.57% on Monday, while the 30-year muni yield was as much as one basis point weaker from 2.49%, according to a midday read of Municipal Market Data's triple-A scale.
U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year Treasury rose up to 0.73% from 0.71% on Monday, while the 10-year Treasury yield slipped to 1.75% from 1.76% and the yield on the 30-year Treasury bond decreased to 2.61% from 2.62%.
The 10-year muni to Treasury ratio was calculated at 89.4% on Monday compared with 88.4% on Friday, while the 30-year muni to Treasury ratio stood at 95.1% versus 94.7%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 33,567 trades on Monday on volume of $7.22 billion.
BlackRock: Munis 10 for 10
For the 10th month in row, municipal bonds in April outperformed Treasuries, according to a market update released by BlackRock Municipals Group on Tuesday.
The S&P Municipal Bond Index returned 0.71% in April and 2.35% for the year to date, the report said, adding that longer-term maturities and lower-rated investment-grade issues outperformed on the month.
This was due mainly to robust demand for munis and manageable supply despite a murkier macro backdrop, the report added.
Crossover demand continued and despite unfavorable headlines from Puerto Rico, Chicago and Atlantic City, the core of the market remained healthy, BlackRock said.
"Puerto Rico imposed a drag on the high yield sector, despite very strong performance from tobacco bonds (up 2%)," the report stated, "Still, the broad high yield sector has low issuance, strong demand and is an important component of carry."
While munis became richer, they still held allure for most investors.
"Munis' outperformance of Treasuries has them looking less cheap on a relative basis, but we believe this does little to dilute the advantages of the asset class, particularly attractive tax-exempt income and a record of high quality and relative stability," the report said.
Muni demand, as measured by fund flows, was $5.3 billion in April and $20.3 billion for the year-to-date.
"We did not see the typical tax-time outflows this April. This is likely due to lower tax bills (given lackluster equity returns in 2015) and a continued demand for high-quality income, lower relative volatility and diversification away from equity and equity-like (corporate high yield) risk," BlackRock said.
Richard Williamson contributed to this report
