The municipal primary saw billions of new deals hit the market, but the final yields on the biggest deal of the day result in something that the market hadn’t seen in a while — New York City repriced higher.
Primary market
New York City brought a total of $1.503 billion of general obligation bonds with one negotiated deal and two competitive sales on Wednesday.
Citi priced New York City’s (Aa1/AA/AA/AA) $1.08 billion of tax-exempt general obligation bonds. The deal was structured to mature serially from 2022 through 2034 as well as well term bonds in 2020 and 2036.
“At these new-low net levels, it is not as easy to push large deals,” said one New York trader. “However, deals in general are [doing just] fine, and as long as flows are so positive — it most likely continues. Retail is having a hard time adjusting to levels though.”
Usually, and especially lately, with the current market dynamics, new deals will see yields lower from the pricing to repricing — that was not the case with this deal, as the low yield went to 0.95% from 0.90% and the high yield went to 1.73% from 1.71%.
“Raising the yields is usually an indication with less-than-robust demand,” said Michael Pietronico, chief executive officer of Miller Tabak Asset Management. “Right now we see the best value in the secondary market where odd lot size pieces are trading 10 to 15 basis points cheaper than new-issue deals. We view any purchases below a 1% yield as a worthless investment to make on behalf of a client.”
The Big Apple sold $423.49 million of taxable GOs. The larger of the two sales, $289.845 million, was won by Morgan Stanley with a true interest cost of 2.4997%. The deal is structured to mature from 2031 through 2035, all priced at par. The 2031 had a 2.36% coupon priced at par. The largest tranche, $88 million in 2034 priced at 2.49%. The transaction saw nine bidders.
The other sale for $133.645 million was won by JP Morgan with a TIC of 1.5857%. The deal is structured mature in 2021 and 2022. The transaction saw 10 bidders.
The city said the $1.5 billion GO offering was successful and that proceeds will be used to refund outstanding bonds.
During the two-day retail order period for the tax-exempts, the city received $302 million of orders from individual investors, the NYC Comptroller’s Office said.
Staying in the competitive arena, Washington State (Aaa/AA+/AA) sold a total of $728.5 million in two separate sales.
Wells Fargo won $608.08 million of various purpose GO bonds with a TIC of 2.7301%. The 10-year with a 5% yielded 1.30%, 5s of 2040 yielded 1.83% and 5s of 2045, the long bond on the deal, yielded 1.98%.
JP Morgan won $120.420 million of motor vehicle fuel tax and vehicle related fees GO bonds with a TIC of 2.7811%.
Citi also priced Chester County Health and Education Facilities Authority’s (Aa3/AA/AA/NR) $132.44 million of health system revenue bonds for Main Line Health System.
Secondary market
Munis were mixed on Wednesday on the MBIS benchmark scale, with yields rising by six basis points in the 10-year and falling by no more than one basis point in the 30-year maturity. High-grades were also mixed with yields on MBIS AAA scale increasing six basis points in the 10-year and decreasing less than a basis point in the 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10-year GO and 30-year GO were one basis point higher to 1.19% and 1.84%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 73.0% while the 30-year muni-to-Treasury ratio stood at 88.1%, according to MMD.
Stocks rallied and were back in the green as data shows fewer new Coronavirus cases. Treasury yields were heading north.
The Dow Jones Industrial Average was up about 0.84%, the S&P 500 index gained 0.56% and the Nasdaq rose about 0.80%.
The 3-month Treasury was yielding 1.556%, the Treasury two-year was yielding 1.452%, the five-year was yielding 1.449%, the 10-year was yielding 1.628% and the 30-year was yielding 2.089%.
"Investment-grade munis down fractionally today, while high-yield names are slightly at midday," ICE Data Services said in a Wednesday market comment. "Puerto Rico issues are taking a breather so far, giving back some of the gains of the past few days. The supply-heavy taxable sector is lower, underperforming Treasuries across the curve."
ICI: Muni funds see $2.99B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.990 billion in the week ended Feb. 5, the Investment Company Institute reported on Wednesday.
It was the 57th straight week of inflows into the tax-exempt mutual funds reported by ICI. The previous week, ended Jan. 29, saw $3.189 billion of inflows into the funds.
Long-term muni funds alone had an inflow of $2.726 billion after an inflow of $2.933 billion in the previous week; ETF muni funds alone saw an inflow of $265 million after an inflow of $255 million in the prior week.
Taxable bond funds saw combined inflows of $10.763 billion in the latest reporting week after revised inflows of $10.170 billion in the previous week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $27.903 billion after inflows of $4.877 billion in the prior week.
Previous session's activity
The MSRB reported 31,782 trades Tuesday on volume of $10.61 billion. The 30-day average trade summary showed on a par amount basis of $11.31 million that customers bought $5.68 million, customers sold $3.73 million and interdealer trades totaled $1.90 million.
California, Texas and New York were most traded, with the Golden State taking 14.221% of the market, the Lone Star State taking 13.321% and the Empire State taking 11.943%.
The most actively traded security was the Puerto Rico Commonwealth GO, 8s of 2035, which traded 45 times on volume of $104.600 million.
N.Y. Fed to publish SOFR index, averages
The Federal Reserve Bank of New York said Wednesday that starting on March 2 it will publish 30-, 90- and 180-day Secured Overnight Financing Rate averages as well as a SOFR Index, to support the successful transition away from using the U.S. dollar London interbank offered rate.
The New York Fed is administrator of SOFR and is working in coordination with the Treasury Department's Office of Financial Research.
The new averages will be called the 30-day Average SOFR, the 90-day Average SOFR and the 180-day Average SOFR.
Last November, the New York Fed asked for public comment on the proposed calculations and the Fed said that the feedback they received was broadly supportive of the change.
The SOFR averages and index will be published on each day that the SOFR is published to a dedicated web page on the
Treasury 10-year note auction
The Treasury Department auctioned $82 billion of 10-year notes with a 1 1/2% coupon at a 1.622% high yield, a price of 98.878738.
The bid-to-cover ratio was 2.58.
Tenders at the high yield were allotted 34.49%. All competitive tenders at lower yields were accepted in full.
The median yield was 1.577%. The low yield was 1.350%.
Chip Barnett 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.
