Top quality municipal bonds were steady to weaker at mid-session, traders said, as the first of the week's big deals started to hit the market.
The yield on 10-year benchmark muni general obligation was as much as two basis points stronger from 1.47% on Monday, while the 30-year muni yield was steady from 2.18%, according to a read of Municipal Market Data's triple-A scale.
"While the betting odds assigned little chance for Brexit passage, poll numbers suggested a closer call," MMD Senior Market Analyst Randy Smolik said in a market comment. "The stock and Treasury markets were being neutralized by the vote that will occur on Thursday."
Other analysts agreed that the market will remain cautious ahead of the referendum on Britain's membership in the European Union.
"State and local government debt in the United States is not immune from pre-Brexit vote uncertainty and bond market volatility in the run up to Thursday's British referendum," Janney Municipal Strategist Alan Schankel said in a market report. "Tax-free benchmark yields moved higher on Monday, although the long end of the curve held up well. At $7.1 billion, trading volume was on the light side, even for a Monday."
In testimony before Congress on Tuesday, Federal Reserve Chair Janet Yellen said the Fed would remain cautious about raising interest rates, citing the upcoming Brexit vote in the U.K. and a sluggish labor market in the U.S.
"The actual path of the federal funds rate will depend on economic and financial developments and their implications for the outlook and associated risks. Stronger growth or a more rapid increase in inflation than the Committee currently anticipates would likely make it appropriate to raise the federal funds rate more quickly," Yellen said in prepared testimony before the Senate Banking committee. "Conversely, if the economy were to disappoint, a lower path of the federal funds rate would be appropriate."
U.S. Treasuries were a bit weaker at midday. The yield on the two-year Treasury rose to 0.75% from 0.73% on Monday, while the 10-year Treasury yield gained to 1.68% from 1.67% and the yield on the 30-year Treasury bond increased to 2.48% from 2.47%.
On Monday, the 10-year muni to Treasury ratio was calculated at 88.0% compared to 88.5% on Friday, while the 30-year muni to Treasury ratio stood at 88.3% versus 88.1%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 31,727 trades on Monday on volume of $7.14 billion.
Primary Market
In the competitive arena, the Virginia College Building Authority sold $234.39 million of Series 2016A educational facilities revenue refunding bonds under the public higher education financing program.
Bank of America Merrill Lynch won the bonds with a true interest cost of 2.11%. The issue was priced to yield from 1.02% with a 5% coupon in 2020 to 2.86% with a 3% coupon in 2039.
The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
In the negotiated sector, Morgan Stanley priced the New York Metropolitan Transportation Authority's $543.66 million of Series 2016B transportation revenue refunding bonds for retail investors ahead of the institutional pricing on Wednesday.
The issue was priced for retail to yield from 0.96% with 3.5% and 5% coupons in a split 2019 maturity to 2.46% with a 5% coupon in 2037.
The deal is rated A1 by Moody's, AA-minus by S&P, A by Fitch and AA-plus by Kroll Bond Rating Agency.
Barclays Capital priced the Connecticut Health and Educational Facilities Authority's $500 million of revenue bonds for Yale University.
The $150 million of Series 2016A-1 bonds were priced at par to yield 1% in 2042 with a mandatory tender date of July 1, 2019. The $250 million of Series 2016A-2 bonds were priced as 2s to yield 1.97% in 2042 with a mandatory tender date of July 1, 2026. The $100 million of Series 2013A bonds were priced as a remarketing at par to yield 1% in 2042 with a mandatory tender date of July 1, 2019.
The deal is rated triple-A by Moody's and S&P.
Wells Fargo Securities priced the Port of Morrow, Ore.'s $115.05 million of taxable Series 2016-2 transmission facilities revenue bonds for the Bonneville Cooperation Project No. 5. The issue was priced to yield about 40 basis points over the comparable Treasury security in 2020 and yield about 60 basis points over the comparable Treasury security in 2021. The deal is rated Aa1 by Moody's and AA by Fitch.
Morgan Stanley is set to price the city of Los Angeles' $1.46 billion of tax and revenue anticipation notes.
Proceeds of the sale will be used to make prepayments to its police, fire and city employees' retirement system; another $400 million will go to the cash flow fund.
Since 2006, the city has sold almost $13 billion of TRANs. Before this sale, the biggest issuance sold by Los Angeles was in 2015 when it offered $1.39 billion of notes.
The TRANs are rated MIG1 by Moody's Investors Service SP1-plus by S&P Global Ratings and F1-plus by Fitch Ratings.
Morgan Stanley is also set to price the New York State Housing Finance Agency's $302.69 million of Series 2016C affordable housing revenue bonds.
Citigroup is expected to price Iowa's $264 million of IJobs Program special obligation refunding bonds. The deal is rated Aa2 by Moody's and AA by S&P.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $56.5 million to $13.05 billion on Tuesday. The total is comprised of $3.72 billion of competitive sales and $9.32 billion of negotiated deals.
