Top-rated municipal bonds ended stronger along with Treasuries on Thursday, according to traders, as the first sizable chunk of supply of the new year hit the market.
Secondary Market
The 10-year benchmark muni general obligation yield fell six basis points to 2.24% from 2.30% on Wednesday, while the yield on the 30-year GO dropped four basis points to 2.99% from 3.03%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries turned stronger on Thursday after a lower than expected private sector jobs report was released. Private-sector employment rose 153,000 in December, on a seasonally adjusted basis, lower than the 170,000 new jobs analysts had been expecting.
The U.S. non-farm payroll report for December will be released on Friday. Economists polled by IFR Markets predict a rise of 175,000 new jobs last month after a gain of 178,000 in November; the unemployment rate is forecast to rise to 4.7% from 4.6% in the previous month.
The yield on the two-year Treasury declined to 1.17% from 1.23% on Wednesday, while the 10-year Treasury yield decreased to 2.37% from 2.46%, and the yield on the 30-year Treasury bond dropped to 2.97% from 3.05%.
Primary Market
"It's been a while since we have seen any legitimate new issuance," said a New York trader. "I would say that people are trying to feel out the market now but it's good to start to get back in the rhythm and have deals to work with."
Barclays Capital priced the Board of Regents of the Texas State University System's $427.9 million of Series 2017A revenue financing system revenue and refunding bonds.
The issue was priced as 5s to yield from 1.16% in 2018 to 3.27% in 2036. A 2017 maturity was offered as a sealed bid. The deal is rated Aa2 by Moody's Investors Service and AA by Fitch Ratings.
Since 2007, TSUS has sold roughly $1.64 billion of securities, with the largest issuance before this year occurring in 2015 when it sold $315 million. The university has issued less than $100 million five times during the same time period and did not come to market at all in 2007 or 2016.
JPMorgan Securities priced the Board of Regents of the University of North Texas' $197.44 million of Series 2017A revenue financing system refunding and improvement bonds.
The issue was priced to yield from 0.80% with a 1% coupon in 2017 to 3.24% in 2036 with a 5% coupon; a 2038 maturity was priced as 5s to yield 3.29% and a 2040 maturity was priced as 5s to yield 3.32%. The deal is rated Aa2 by Moody's and AA by Fitch.
Wells Fargo Securities priced the District of Columbia's $301.67 million of Series 2017 refunding revenue bonds for Georgetown University.
The issue was priced as 5s to yield from 1.91% in 2021 to 3.43% in 2036 and 3.55% in 2042. The deal is rated A2 by Moody's and A by S&P Global Ratings.
Wells Fargo also priced the University of Pittsburgh, Pa.'s $512.63 million of Series 2017A taxable university refunding bonds.
The issue was priced at par to yield from 1.004% in 2017 to 3.427% in 2031 and 3.646% in 2036. The deal is rated Aa1 by Moody's and AA-plus by S&P.
Citigroup priced the New York State Housing Finance Agency's $120.52 million of affordable housing Series 2017A climate bond certified green bonds and Series 2017B revenue bonds.
The $53.995 million of Series 2017A Series A climate bond certified green bonds, not subject to the alternative minimum tax, were priced at par to yield from 1.50%, 1.60% and 1.60% in a triple-split 2019 maturity to 3.10% in 2028, 3.65% in 2032, 3.95% in 2037, 4% in 2042, 4.05% in 2047 and 4.10% in 2049.
The $66.53 million of Series 2017B non-AMT bonds were priced at par to yield from 1% and 1.10% in a split 2017 maturity to 3.10% in 2028, 3.65% in 2032, 3.95% in 2037, 4% in 2042, 4.05% in 2047, 4.10% in 2049 and 4.20% in 2052. The deal is rated Aa2 by Moody's.
Piper Jaffray received the written award on the El Paso Independent School District, Texas' $181.84 million of Series 2017 unlimited tax school building bonds. The issue was priced to yield from 2.61% with a 5% coupon in 2027 to 3.21% with a 5% coupon in 2038; a split 2042 maturity was priced as 5s to yield 3.28% and as 4s to yield 3.70%. The deal, which is backed by the Permanent School Fund guarantee program, is rated triple-A by Moody's and Fitch.
In the competitive arena, the Cherry Creek School District No. 5, Colo., sold $150 million of Series 2017 general obligation bonds.
JPMorgan won the deal with a true interest cost of 3.38%. The issue was priced to yield 1.18% with a 5% coupon in 2018 and to yield from 2.04% with a 5% coupon in 2023 to 3.32% with a 4% coupon in 2036. The deal is rated Aa1 by Moody's and AA by S&P.
The Florida Department of Transportation competitively sold $148.21 million of Series 2016C turnpike revenue refunding bonds.
Wells Fargo won the issue with a TIC of 3.21%. The issue was priced to yield 1.18% with a 5% coupon in 2018 to 3.50% with a 4% coupon in 2037. The deal is rated Aa2 by Moody's and AA by S&P and Fitch.
In the short-term competitive arena, Colorado sold $375 million of Series 2016B education loan program tax and revenue anticipation notes, due June 28. Four groups won different amounts of the deal, including Wells Fargo, Morgan Stanley, Citi and Bank of America Merrill Lynch. The deal is rated MIG1 by Moody's and SP1-plus by S&P.
Wells Fargo won $250 million with a bid of 0.878964%, a premium of $3,605,000, an effective rate of 4%. Morgan Stanley won $50 million with a bid of 0.874664%, a premium of $491,000, an effective rate of 3%. BAML won $25 million with a bid of 0.864103%, a premium of $477,750, an effective rate of 5%; BAML also won $25 million with a bid of 0.874726%, a premium of $476,500, an effective rate of 5%. Citi won $25 million with a bid of 0.859656%, a premium of $247,249.99, an effective rate of 3%.
Next week will be a better test of where the market is, the New York trader said, as we should see a closer to normal level of issuance and more well-known names hit the market. "Let's see where we are this time next week," the trader said, "but the feeling I am getting is that deals that are coming next week should get put away with ease as there is definitely demand out there."
Janney Looks Ahead to Chicago's $1.1B Sale
Chicago's much anticipated $1.1 billion of general obligation bonds will be coming to market the week of Jan. 16, according to underwriter Goldman Sachs.
The city is rated Ba1 by Moody's, BBB-plus by S&P and Kroll Bond Rating Agency and BBB-minus by Fitch.
"Chicago, which has felt credit pressure from increasing pension and debt service costs, will be using the proceeds of the 2017 bond sale for 'scoop and toss' restructuring of debt as well as citywide capital projects," Eric Kazatsky, Janney's director of municipal credit research, wrote in a Thursday market comment. "Drivers of the lower ratings include woefully underfunded pensions at approximately 23% and elevated total fixed costs for debt service, pensions and OPEB measuring close to 38% of total expenditures."
There was a bright spot in the city's financial position, however.
"Positively, Chicago has adjusted the water-sewer tax, which will increase from $0.59/1,000 gallons to $2.51/1,000 gallons, as part of the plan to address rising pension costs over the next five years," Kazatsky said.
Tax-Exempt Money Market Fund Outflows
Tax-exempt money market funds experienced outflows of $851.3 million, bringing total net assets to $130.27 billion in the week ended Jan. 2, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $172.6 million to $131.12 billion in the previous week.
The average, seven-day simple yield for the 237 weekly reporting tax-exempt funds increased to 0.27% from 0.25% in the previous week.
The total net assets of the 863 weekly reporting taxable money funds decreased $20.11 billion to $2.547 trillion in the week ended Jan. 3, after an inflow of $11.07 billion to $2.567 trillion the week before.
The average, seven-day simple yield for the taxable money funds increased to 0.24% from 0.23% in the previous week.
Overall, the combined total net assets of the 1,100 weekly reporting money funds fell $20.96 billion to $2.677 trillion in the week ended Jan. 3 after inflows of $10.90 billion to $2.696 trillion in the prior week.
