New York City TFAs face some concessions in deal while primary takes focus
The primary market was the focus Tuesday, with an upsizing of the New York City Transitional Finance Authority's future tax-secured deal, while the secondary was relatively stable with small bumps on the very short end of the curve.
“It is a rare day in the recent history of the muni market,” ICE Data Services said. “Trade volumes at midday are slightly higher than [Monday], but below last week’s daily levels.”
Triple-A benchmarks saw two to four basis point bumps on the one- to two-year part of the curve while levels remained steady outside.
New issues are being met with decent demand and many are being oversubscribed and repriced lower — and that should remain constant given the seasonal arrival of spring reinvestment season.
"Municipals continue to perform well as the technical imbalance favors a stronger bid,” Peter Delahunt, managing director of municipals at Raymond James & Associates, said Tuesday. He noted that demand during the retail order period for the New York TFA deal saw “exceptional" strength in the first six years.
"Both secondary and new issue supply is thin, while seasonal principle and interest rollovers are poised to expand,” he added.
Various buyer segments are creating less defined spread and yield relationships though than what the market is used to seeing on the short end of the curve, said Kim Olsan, FHN Financial senior vice president.
“Some activity is being driven by real yields that surpass those of comparable taxable debt, while more traditional muni buyers are driven by preferences for heavier concentrations in AAA and similar categories,” she said. “Past this range, a steeper slope is keeping buyers engaged but with a lower float as availability in highly rated bonds declines. Both the total par traded in the secondary market (running on many days below $5 billion) and interdealer activity (less than 30% of flows past 10 years) suggest whatever new-issue is pricing is re-trading at smaller volumes.”
Loop Capital Markets priced the New York City Transitional Finance Authority’s (Aa1/AAA/AAA/NR) $700 million of tax-exempt future tax secured subordinate bonds, Fiscal 2020 Series C Subseries C-1, for retail investors ahead of Wednesday’s institutional pricing.
The deal was upsized from the originally planned $500 million.
The deal was priced for retail to yield from 0.83% with a 5% coupon in 2022 to 2.47% with a 5% coupon in 2041; a 2046 term was priced as 3s to yield 3.056%. The deal saw yields about 20 basis points to 70 basis points higher than AAA benchmarks.
The last time the TFA was in the market was December when it brought $850 million of future tax-secured bonds as well as $172 million of future tax taxable subordinate bonds. On Dec. 12, the day the deals priced, the 10-year was at 1.44% on MMD versus TFA 2029 maturity at 1.56, a 12 basis point spread.
"Understandably New York City is under stress being the U.S. epicenter for the coronavirus and with (64966QJZ4) (Aa1/Aa) $3 million NYC GO 5s of 2043 being bought at 2.53% +69 basis points today's trade is to the wider side of the +50/+70bp range that the city has seen over the last several weeks,” said Peter Frank, senior market analyst at Refinitiv MMD.
Meanwhile local sales-tax collections in New York dropped more than 24% in April with losses amounting to $327 million, according to a news release from Comptroller Thomas DiNapoli. New York City experienced a 141.8 million revenue loss in April, a 23.1% decline from the prior year.
The TFA will also competitively sell $226 million of taxable bonds in two offerings on Wednesday.
Morgan Stanley priced and repriced Purdue University’s (Aaa/AAA/NR/NR) $113 million of Series EE student fee bonds to lower yields by as much as 13 basis points.
The Indiana school’s issue was repriced to yield from 0.58% with a 4% coupon and 0.60% with a 5% coupon in a split 2021 maturity to 1.89% with a 5% coupon in 2037.
In the note sector, Citi received the written award on Long Beach, Calif.’s (Aa2/NR/AA&F1+/NR) $145 million of short-term harbor revenue notes. The notes, due July 15, 2021, were priced to yield 0.95% with a 4% coupon.
In the competitive arena, Miami-Dade County, Fla. (Aa2/AA/NR/NR), sold $338.615 million of general obligation bonds as a remarketing for the Building Better Communities program.
Citigroup won the deal with a true interest cost of 2.6874%.
The deal was priced to yield from 0.54% with a 5% coupon in 2021 to 2.49% with a 4% coupon in 2045.
Mesirow Financial won $173 million of Fayetteville School District #1, Arkansas (Aa2/ state aid withholding) of refunding and construction bonds. Yields on 4s of 2021 were 0.65%, 2s of 2030 yielded 1.95% and 3s of 2050 yield 2.90%.
Illinois is gathering pricing views for its massive planned deals but no price views were available as of press time. Sources said the state is leaving the door open to pricing the long-term bonds as soon as Wednesday.
On Wednesday, RBC Capital Markets is set to price the Dormitory Authority of the State of New York’s $465 million of revenue bonds for the school districts revenue bond financing program.
The DASNY deal is made up of four tranches consisting of Series A bonds (Aa3//AA-/), Series B bonds (Aa2//AA-/), Series C bonds (/AA/AA-/) and Series D bonds (Aa3//AA-/).
Proceeds will benefit school districts throughout the state.
Since 2010, DASNY has sold about $67 billion of debt and is one of the top issuers of municipal bonds in the country.
Price talk on Duke University’s (Aa1/AA+//) $1.2 billion of taxable corporate CUSIP bonds showed bonds in 2044 T+130, bonds in 2050 at T+137.5 area and bonds in 2055 T+150.
Price talk on $1 billion of taxable corporate CUSIP bonds for Emory University (Aa2/AA//) show bonds in 2025 T+140 basis points, T+150 basis points in 2030 and T+162.5 basis points.
Both the deals are expected to price Wednesday.
Short-term high-grades showed strength Tuesday.
Austin, Texas, ISD 5s of 2021 traded at 0.51%-0.50%. Mecklenburg County, N.C., GOs, 5s of 2024 traded at 0.78%-0.76%. Monday they traded at 0.80%.
Yale 5s of 2029 traded at 1.05%-1.04%. Thursday they traded at 1.14%.
Collin County, Texas, community college reves 4s of 2034 traded at 1.76%-1.70%. Friday they traded at 1.83%.
Out longer, Iowa Finance Authority green bonds, 5s of 2049, traded at 2.13%-2.04%.
Lubbock Texas ISD 4s of 2050 traded at 2.21%-2.16%.
On Refinitiv Municipal Market Data’s AAA benchmark scale, yields fell four basis points to 0.54% in 2021 and 0.59% in 2022.
The ICE municipal yield curve also showed short-term maturities falling, with the 2021 maturity down two basis points to 0.52% and the 2022 maturity down one basis point to 0.57%.
IHS Markit’s municipal analytics AAA curve showed the 2021 maturity at 0.53% and the 2022 maturity at 0.58%.
The BVAL curved showed the 2021 maturity down two basis points to 0.47% and the 2022 at 0.53% down two.
Longer-term munis were little changed.
On MMD’s scale, the yield on the 10-year GO remained at 1.13% while the 30-year was steady at 1.94%.
The 10-year muni-to-Treasury ratio was calculated at 165.4% while the 30-year muni-to-Treasury ratio stood at 139.9%, according to MMD.
On the ICE municipal yield curve, the 10-year yield was unchanged at 1.130% while the 30-year remained at 1.951%.
The 10-year muni-to-Treasury ratio was calculated at 179% while the 30-year muni-to-Treasury ratio stood at 137%, according to ICE.
IHS Markit’s curve had the 10-year muni at 1.16% and the 30-year at 1.99%.
BVAL showed the 10-year muni down one basis point to 1.13% while the 30-year fell 1 basis point to 1.99%.
Munis were also little changed on the MBIS benchmark and AAA scale, with yields falling in both the 10- and 30-year maturities.
Treasuries strengthened as equities weakened.
Late in the day, the 10-year Treasury was yielding 0.687% and the 30-year was yielding 1.384%.
The Dow was down 0.54%, the S&P 500 was off 0.67% and the Nasdaq was 0.35% lower.
More on the primary
Olsan noted that supply is an important metric to consider given current circumstances. During the first quarter, The Bond Buyer Visible Supply number averaged $11.4 billion. Since the beginning of April when new issue flow was restored, the figure has risen to $13 billion as issuance needs grow.
“The market has had two clear points of focus with supply: 1) issuers coming to market and being offered liquidity, and 2) limiting dealer carry risk,” she said.
During the first quarter of the year, there were 293 deals priced for an average size of $132 million. The 10-year AAA benchmark median yield was 1.35% and the 30-year AAA benchmark median was 1.94%.
Relative value stood at 113% in the 10-year AAA/10-year UST ratio and played a larger role in distribution.
“In the first full month of Q2, the average deal size has declined 8% to $122 million” and there are a few reasons are likely for the decline, “namely more restricted dealer balance sheets post-correction and the market’s ability to absorb smaller, rather than larger, deal sizes amidst fluctuating mutual fund flows.”
Intermediate yield averages have fallen to 1.25% in the last month, while the long-end median yield has risen to 2.08%, Olsan noted.
A total of 141 deals over $25 million have come to market since the beginning of April, signaling that the remainder of the quarter could surpass the deal count of the first three months.
“With issuance conditions in flux, outsized relative value—nearing 200% in 10-year maturities—has taken a back seat to absolute yield concerns,” Olsan noted.
Christine Albano contributed to this report.