Top-rated municipal bonds were weaker at mid-session, according to traders, as the Federal Reserve gets set to announce its decision on interest rates this afternoon.
The Federal Open Market Committee is set to make its announcement at 2 p.m., Eastern time. Having raised the target range for the federal funds rate to 1/2-to-3/4 percent at its last meeting, the FOMC is expected to take no action at this meeting, though economists expect the panel to raise the target three times this year.
The 10-year benchmark muni general obligation yield was two to three basis points higher from 2.32% on Tuesday, while the yield on the 30-year GO was one to two basis points higher from 3.08%, according to a read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Wednesday. The yield on the two-year Treasury rose to 1.24% from 1.20% on Monday, while the 10-year Treasury gained to 2.50% from 2.45%, and the yield on the 30-year Treasury bond increased 3.09% from 3.05%.
On Tuesday, the 10-year muni to Treasury ratio was calculated at 94.7% compared to 93.8% on Monday, while the 30-year muni to Treasury ratio stood at 100.9%, versus 100.0%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 40,006 trades on Monday on volume of $8.08 billion.
Primary Market
This week's new issue slate is estimated at $4.03 billion, comprised of $3.37 billion of negotiated deals and $661.4 million of competitive sales.
Wells Fargo Securities priced the Oklahoma Turnpike Authority's $480 million of Series 2017A second senior revenue bonds and Series 2017B refunding second senior revenue bonds for institutions on Wednesday after holding a retail order period on Tuesday.
The $456.07 million of Series 2017A bonds were priced to yield from 3.57% with a 3.5% coupon and as 5s with a 3.15% coupon in a split 2032 maturity to 3.81% with a 4% coupon and 3.35% with a 5% coupon in a split 2038 maturity; a split 2042 maturity was priced as 4s to yield 3.88% and as 5s to yield 3.40%; and a 2047 maturity was priced as 4s to yield 3.93%.
The $23.93 million of Series 2017B bonds were priced to yield from 0.93% with a 3% coupon in 2018 to 1.86% with 2% and 3% coupons in a split 2022 maturity.
The deal is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
Since 2007, the Oklahoma Turnpike Authority has issued about $1.31 billion of debt, with the largest issuance occurring in 2011 when it sold roughly $684 million of debt. The system did not come to market at all from 2008 through 2010 and from 2013 through 2016.
Raymond James is expected to price the Aldine Independent School District, Texas' $124.11 million of unlimited tax refunding bonds. The deal, which is backed by the Permanent School Fund guarantee program, is rated triple-A by Moody's and S&P.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $356.3 million to $8.74 billion on Wednesday. The total is comprised of $1.77 billion of competitive sales and $6.97 billion of negotiated deals.
Colby: Trump Dump Creates High Yield Opportunity
"An oddity that has become evident in the weeks following the U.S. presidential election of Donald Trump has been not the rapid response by U.S. Treasury yields to move to higher, but the near inverse move by municipal high yield compared with corporate high yield," writes Van Eck Senior Municipal Strategist James Colby in his Muni Nation blog.
"With the prospect that interest rates were likely to rise given the expected Trump initiatives, it comes as no surprise to me that portfolio adjustments would lead to selling and repositioning. And a near-term move to higher rates would, for high grade corporates as well as high grade municipals, result in negative performance. In fact, this is what occurred through the second week of December," he writes. "But what was odd and abnormal, for the muni market at least, was an even more severe negative response by investors to municipal high yield."
But he said that opportunity has returned to the municipal high-yield sector.
"The good news is measurable opportunity has returned to municipal high yield," he writes. "Currently yields are well above the long-term average and nominally above corporate high yield, a measure I have often spoken of as a signal for tactical allocation …. municipal high yield is currently offering both outstanding relative value and attractive yields. I believe it's time to hit the 'reset' button and reconsider municipal high yield."
