Top-rated municipal bonds were weaker at mid-session, according to traders as the state of Maryland sold over $1 billion of high-quality bonds in the competitive arena.
Secondary Market
The 10-year benchmark muni general obligation yield on Tuesday rose two to four basis points from 2.42% on Tuesday, while the yield on the 30-year GO rose two to four basis point from 3.19%, 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 1.36% from 1.33% on Tuesday, while the 10-year Treasury yield gained to 2.57% from 2.51%, and the yield on the 30-year Treasury bond increased to 3.15% from 3.11%.
On Tuesday, the 10-year muni to Treasury ratio was calculated at 96.3% compared to 97.1% on Monday, while the 30-year muni to Treasury ratio stood at 102.5%, versus 102.7%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,997 trades on Tuesday on volume of $9.66 billion.
Primary Market
Maryland sold almost $1.15 billion of tax-exempt and taxable general obligation bonds in three separate sales.
Bank of America Merrill Lynch won the $575 million of First Series A tax-exempt GOs, state and local facilities loan of 2017, with a true interest cost of 2.83%. The bonds were priced to yield from 1.63% with a 5% coupon in 2022 to 3.38% with a 3.25% coupon in 2032.
BAML also won the $470.89 million of First Series C tax-exempt refunding GOs, state and local facilities loan of 2017, with a TIC of 1.72%. The issue was priced as 5s to yield 0.75% in 2017 and 0.86% in 2018 and to yield from 1.26% in 2020 to 2.13% in 2024 and to yield 2.49% in 2027.
Wells Fargo Securities won the $100 million of First Series B taxable GOs, state and local facilities loan of 2017, with a TIC of 2.03%. The bonds were priced at par to yield 1.80% in 2020, 2% in 2021 and 2.25% in 2022.
All three deals are rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings.
Since 2007, the Old Line State has sold about $13.82 billion of bonds, with the greatest issuance coming in 2014 when it offered $1.88 billion. The state has issued more than $1 billion each year since 2009.
In the negotiated sector, Jefferies priced the New York Metropolitan Transportation Authority's $318.28 million of transportation revenue green bonds for retail investors on Wednesday ahead of the institutional pricing on Thursday.
The $182.04 million of Subseries 2017A-1 climate bond certified transportation revenue green bonds were priced for retail to yield from 1.27% with a 3% coupon in 2018 to 3.61% with a 5% coupon in 2037; a 2042 maturity was priced as 4s to yield 4.05% and a 2047 maturity was priced as 5s to yield 3.71%. The 2017 and 2018 maturities were offered as sealed bids. No retail orders were taken in the 2052 or 2057 maturities.
The $136.24 million of Subseries 2017A-2 climate bond certified transportation revenue refunding green bonds were priced for retail as 5s to yield from 2.51% in 2024 to 3.21% in 2030.
The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
Citigroup is expected to price the city of Los Angeles Department of Water and Power's $342 million of Series 2017B power system revenue bonds for retail investors ahead of the institutional pricing on Thursday. The deal is rated Aa2 by Moody's and AA-minus by S&P and Fitch.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar decreased $3.78 billion to $11.79 billion on Wednesday. The total is comprised of $4.03 billion of competitive sales and $7.76 billion of negotiated deals.
BlackRock: Munis Wait for Guidance on Tax Reform, Fed Policy
Municipal and Treasury bonds stayed in a narrow range in February as traders awaited clarity on tax reform and monetary policy, according to a report from BlackRock entitled "Investors Return to Municipal Bonds."
"Munis were able to outperform Treasuries thanks primarily to limited supply and positive demand. New issuance of $20.7 billion was 40% below the robust level of the month before and 15% below the 10-year average for February," the report said.
The report noted that since the middle of last year, new issuance has deviated from its historical seasonal pattern.
"Issuers seem motivated to pull forward deals due to fears of rising rates, making it more difficult to project supply and its potential impact on performance," according to the reported authored by Peter Hayes, head of the municipal bond group, and James Schwartz, head of municipal credit research, and Sean Carney, head of municipal strategy. "Demand for munis remained constructive, with $2.7 billion in inflows for the month. Flows were concentrated in the high yield space as investors chased the sector's strong performance. Notably, demand waned in the latter part of the month as tax reform returned to the headlines."
Looking ahead, the report said while March is one of only two months with an average negative return figure, "investors should not be deterred from the asset class."
