New Mass. taxables trade actively as muni yields fall to record lows
And the volume kept on coming in the primary Wednesday. Municipal issuers from Delaware, Texas and South Carolina sold deals to supply-starved buyers who snapped up the paper while recently issued bonds from Massachusetts were actively traded in the secondary. Yields on MMD's AAA muni GO scale fell to record lows, dropping past the previous levels set on Aug. 14
In the competitive arena, the Delaware Transportation Authority (Aa1/AA+/NR) sold $137.135 million of Series 2019 transportation system senior revenue bonds. Wells Fargo Securities won the issue with a true interest cost of 2.0914%. PFM Financial Advisors was the financial advisor; Saul Ewing was the bond counsel. Proceeds will be used to finance capital projects.
The Brazosport Independent School District, Texas, (PSF: Aaa/NR/NR) sold $156 million of unlimited tax general obligation school building bonds. BofA Securities won the issue with a TIC of 2.2285%. USCA Municipal Advisor was the financial advisor; Hunton Andrews and the State Attorney General were the bond counsel. Proceeds will be used to finance various schools and buy sites for school buildings and new school buses.
The South Carolina Association of Governmental Organizations (Aa1/NR/NR) sold $121.571 million of Series 2019D certificates of Participation. JPMorgan Securities won the COPs with a bid of 100.3610 as 2s, a premium of $438,871.30, an effective rate of 1.1684%. Compass Municipal Advisors was the financial advisor; Burr Forman McNair was the bond counsel.
BofA received the official award on Atlanta, Georgia’s (Aa3/AA-/AA-) $686.35 million of airport general revenue bonds, consisting of Series 2019A bonds not subject to the alternative minimum tax, Series 2019B AMT bonds, Series 2019C non-AMT subordinate lien bonds and Series 2019D AMT subordinate lien bonds.
BofA received the written award on Jacksonville, Florida’s (NR/AA/AA-) $197.16 million of Series 2019A special revenue and refunding bonds and Series 2019B special revenue refunding bonds.
Raymond James & Associates received the written award on Fort Myers, Florida’s (Aa3/A+/A+) $113.74 million of Series 2019A utility system refunding and revenue bonds.
Wednesday’s bond sales
Click here for the Delaware sale
Mass. bonds appeal to foreign investors
Massachusetts’ (Aa1/AA/AA+) sale of more than $1 billion of refunding bonds in two separate issuances will generate almost $234 million in gross debt service savings, the State Treasurer’s Office announced on Wednesday.
"The commonwealth was able to take advantage of historically low interest rates and robust investor demand to advance refund bonds in the taxable market. The taxable advance refunding generated present value savings in excess of 17% and locked in long-term financing at attractive cost of funds,” said Treasurer Deborah Goldberg. “This refinancing also allowed the commonwealth to diversify its investor base by attracting several new institutional investors."
On Monday, BofA priced $858 million of taxable Series 2019D GO refunding bonds. The preliminary official statement was initially sized at $441 million, but that was increased to $858 million during the order period “due to a continued lower movement in interest rates and high investor demand, which led to increased savings,” the Treasurer’s office said.
The taxables were structured with two index-eligible term bonds due in 2039 and 2043, designed specifically to appeal to as many new investors as possible and provided increased liquidity, the Treasurer’s office said.
“With international yields in many countries becoming negative, the transaction provided a good credit diversification opportunity for investors — resulting in over 32 different investors participating in the sale and allowing BofA to lower yields by 5 basis points for the shorter duration term bond," according to the Treasurer's office. Final pricing results were +65 basis points and +80 basis points spread to the 30-year UST on the 2039 and 2043 maturities, respectively.”
Sue Perez, Deputy Treasurer for Debt Management, noted the challenges dealing with the new tax laws.
“Tax reform eliminated our ability to issue tax-exempt advance refunding bonds, thereby eliminating some flexibility in the managing of its outstanding debt portfolio. The recent continued improvement in U.S. Treasury rates and taxable credit spreads across the curve provided the commonwealth with an attractive opportunity to advance refund on a taxable basis a portion of the bonds callable in year 2021,” Perez said. “We were already scheduled to come to market with a tax-exempt new money and refunding financings; thus, all required disclosure for a capital markets offering was ready for investor distribution. In working with our senior manager, BofA, the commonwealth was able to work quickly to take advantage of this unique opportunity.”
EMMA showed that one of the most actively traded securities on Wednesday were the Massachusetts taxable 2.663% GOs of 2039, originally priced at par, were trading at a high price of 102.344, a low yield of 2.513%, in 24 trades totaling $33 million. The 2.663s traded at a high of 102.444, a low yield of 2.507%, in 35 trades totaling $148 million on Tuesday.
On Tuesday, Massachusetts sold $189.6 million of Series 2019E tax-exempt refunding GOs. Goldman Sachs won the bonds due 2020 to 2027 with a TIC of 1.2539% and priced them with 3% coupons and yields ranging from 1.03% in 2020 to 1.34% in 2027. The current refunding generated present value savings in excess of 9.4%, the Treasurer's Office said.
Massachusetts will again be in the market next week as Morgan Stanley prices $600 million new money tax-exempt GO on Thursday, Sept,. 5 after a one-day retail order period.
NYC continues ban on Wells Fargo underwriting
New York City officials said Wednesday that they will continue to keep in place a ban on municipal bond underwriting ban by Wells Fargo after the Chairman of the Federal Reserve indicated last month that the firm is still working to fix its governance procedures.
The New York City underwriting ban — along with bans enforced by several other municipalities around the nation — was instituted in 2017 after a scandal involving the firm in fake customer accounts and excessive auto insurance premiums sold to clients.
“So the problems at Wells Fargo — that arose at Wells Fargo around risk management and consumer — the way they dealt with the consumer were actually pretty deep, and I think the company realizes that. And they’re not going to be fixed — they haven’t been fixed quickly, and, frankly, we didn’t expect them to be fixed quickly,” Fed Chair Jerome Powell said in response to a question from The American Banker. “So they’re — you know, they — they will be under the growth cap, our enforcement action, until the board votes to lift it, and that’s not something we’re considering doing right now. And the committee — I mean, the company is working away to address these issues, but, as I said, they’re deep-seated issues, and it just takes time to address them.”
Powell said the Fed had an enforcement action in place.
“The company is working away at addressing it. They take it seriously. I think they do see it as we do, as something that has to go deep. And, you know, we’ll lift the growth cap when we’re satisfied,” Powell said.
New York City Comptroller Scott Stringer said on Wednesday that the firm must continue to work on rebuilding trust.
"Years after Wells Fargo’s disaster, they have yet to demonstrate real, significant change," Stringer said in a comment to The Bond Buyer. "Ethics matter, public trust is a must, and accountability is non-negotiable. New York City suspended Wells Fargo from senior book-running our transactions in 2017 and we will continue to stand up to them until they have demonstrated they are deserving of New Yorkers’ confidence and trust."
The Office of New York City Mayor Bill de Blasio said on Wednesday that “we are still not doing business with Wells Fargo.”
The city is one of the largest issuers of municipal debt in the U.S. As of March 31, the city had nearly $38 billion of general obligation (Aa1/A/A) debt outstanding. That's not counting the various city authorities which issue debt.
The NYC Transitional Finance Authority has around $37 billion of debt outstanding while the NYC Municipal Water Finance Authority has about $30 billion. The TFA’s debt consists of future tax secured senior bonds (Aaa/AAA/AAA), future tax-secured subordinate bonds (Aa1/AAA/AAA) and building aid revenue bonds (Aa2/AA/AA). The MWFA’s debt consists of general resolution bonds (A1/AAA/AA+) and second general resolution bonds (Aa1/AA+/AA+).
ICI: Muni funds see $2.07B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.074 billion in the week ended Aug. 14, the Investment Company Institute reported on Wednesday.
It was the 34th straight week of inflows into the tax-exempt mutual funds and followed an inflow of $1.888 billion in the previous week.
Long-term muni funds alone saw an inflow of $1.805 billion after an inflow of $1.632 billion in the previous week; ETF muni funds alone saw an inflow of $269 million after an inflow of $255 million in the prior week.
Taxable bond funds saw combined inflows of $1.876 billion in the latest reporting week after inflows of $8.151 billion in the previous week.
ICI said the total combined estimated outflows from all long-term mutual funds and ETFs were $10.179 billion after inflows of $10.043 billion in the prior week. Equity funds were the biggest losers of the week, seeing $14.004 billion of outflows.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GOs fell two basis points to a record low of 1.21% while the yield on the 30-year dropped four basis points to a new low of 1.83%.
Munis were weaker in late trade on the MBIS benchmark scale, with yields rising by two basis points in the 10-year maturity and by less than a basis point in the 30-year maturity. High-grades were also weaker, with MBIS’ AAA scale showing yields rising by less than one basis point in the 10-year maturity abd by one basis point in the 30-year maturity.
“Municipal bonds are experiencing some nice gains today, outperforming other parts of the fixed income market. Yields on the ICE Muni Yield Curve are lower across the board, with the long end down over four basis points,” ICE Data Services said in a Wednesday market comment. “The relative value of munis in the long end, as measured by the muni to Treasury yield ratio (still in 100% area), is attracting more media attention, helping to give a bid to that sector. High yield is also better, by two to three basis points, led by tobacco issues. Puerto Rico bond prices are slightly higher despite Tropical Storm Dorian bearing down on the island.”
The 10-year muni-to-Treasury ratio was calculated at 82.4% while the 30-year muni-to-Treasury ratio stood at 94.3%, according to MMD.
Treasuries were stronger as stocks remained volatile. The Treasury three-month was yielding 1.992%, the two-year was yielding 1.512%, the five-year was yielding 1.369%, the 10-year was yielding 1.461% and the 30-year was yielding 1.933%.
Previous session's activity
The MSRB reported 32,104 trades Tuesday on volume of $10.71 billion. The 30-day average trade summary showed on a par amount basis of $11.17 million that customers bought $5.87 million, customers sold $3.24 million and interdealer trades totaled $2.06 million.
California, Texas and New York were most traded, with the Golden State taking 14.874% of the market, the Lone Star State taking 14.83% and the Empire State taking 10.602%.
The most actively traded security on Monday was the Texas 2019 TRANs 4s of 2020, which traded 41 times on volume of $70.15 million. The TRANS, originally priced at 102.62 to yield 1.287%, were trading at a high price of 102.736, a low yield of 1.171%.
Treasury sells notes
The Treasury Department Wednesday auctioned $41 billion of five-year notes, with a 1.25% coupon, a 1.365% high yield, a price of 99.446819. The bid-to-cover ratio was 2.48.
Tenders at the high yield were allotted 56.75%. All competitive tenders at lower yields were accepted in full. The median yield was 1.320%. The low yield was 1.250%.
Treasury also auctioned $18 billion of one-year 11-month floating rate notes with a high discount margin of 0.238%, at a 0.220% spread, a price of 99.965088. The bid-to-cover ratio was 2.92.
Tenders at the high margin were allotted 7.21%. The median discount margin was 0.225%. The low discount margin was 0.190%. The index determination date is Aug. 26 and the index determination rate is 1.950%.
Gary E. Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation.