New York City had little difficulty completing over $1 billion of bond sales in competitive and negotiated deals on Thursday, even amid concern over rising interest rates.
A North Carolina trader described Thursday as a “fairly modest day with somewhat decent selling pressure” in the backdrop of a bearish tone on the future of interest rates. He said prices seemed “a little softer in spots,” especially further out on the yield curve.
NYC also competitively sold $250 million of taxable fixed-rate bonds in two separate offerings.
RBC Capital Markets won the $186.555 million of taxable Fiscal 2018 Series E Subseries E-2 GOs with a true interest cost of 3.417% while Jefferies won the $63.445 million of taxable Fiscal 2018 Series E Subseries E-3 GOs with a TIC of 3.783%.
Moody’s Investors Service rates the city’s GOs Aa2, while S&P Global Ratings and Fitch Ratings rate them AA. All three assign stable outlooks.
"During a two-day retail order period for the tax-exempt bonds, the city received $217 million of retail orders, of which approximately $196 million was usable," the city said in a release. "During the institutional order period, the city received nearly $2.0 billion of priority orders, representing 2.9-times the bonds offered for sale to institutional investors. Given the strong market demand, yields were reduced by 1–2 basis points for maturities in 2022 through 2025, 2–3 basis points for maturities in 2030 through 2032, 7–8 basis points for maturities in 2034 through 2035 and 2 basis points for maturities in 2041 – 2042. Final stated yields ranged from 1.58% in 2020 to 3.36% in 2044 for a 5.00% coupon bond and 3.70% in 2045 for a 3.625% coupon bond."
Since 2008, NYC has sold almost $47 billion of bonds, with the greatest issuance occurring in 2008 when it sold $6.7 billion of debt. Issuance hit a low in 2011 when the city sold $2.7 billion of debt.
“Given the modest supply all year, most deals are priced in a fashion to garner pretty good interest,” especially states like New York that have good name recognition and hail from a high tax specialty state, the North Carolina trader said.
Overall, he said, municipal investors remain cautious and relaxed -- even though supply is starting to pick up slightly.
“There has been a kind of shift toward a bearish posture on rates,” he said Thursday afternoon. “There has been somewhat of a repositioning of portfolios from a structural basis. Demand is certainly not as robust as it was last year and there has definitely been a sentiment shift,” he added.
On the buy side, traders said there was still a sense of hesitation about market tone on Thursday.
“I think retail is cautious,” a New Jersey trader said, adding that the city's GO deal was less than appealing to traditional retail buyers. “It was fairly priced for both the issuer and the buyers. I don’t think it’s cheap or rich, but I don’t think they had the typical amount of substantial demand from retail.”
He attributed retail’s mood to their expectation of higher rates. “People are saying ‘why buy something on Monday if similar bonds are priced on Thursday and I can get them cheaper?’”
Also on Thursday, BAML priced the California Infrastructure and Economic Development Bank’s $449.23 million of Series 2018 clean water state revolving fund revenue green bonds.
Barclays Capital priced the Illinois Finance Authority’s $164.71 million of Series 2018A revenue bonds and Series 2018B taxable revenue bonds for the University of Chicago.
Goldman Sachs priced the Washington Convention and Sports Authority’s $275.54 million of Series 2018A tax-exempt senior lien dedicated tax revenue refunding bonds.
Bond Buyer 30-day visible supply at $8.16B
The Bond Buyer's 30-day visible supply calendar increased $1.07 billion to $8.16 billion on Friday. The total is comprised of $2.98 billion of competitive sales and $5.18 billion of negotiated deals.
Previous session's activity
The Municipal Securities Rulemaking Board reported 44,874 trades on Wednesday on volume of $10.19 billion.
California, Texas and New York were the states with the most trades, with the Golden State taking 12.02% of the market, the Empire State taking 11.943%, and the Lone Star State taking 11.073%.
Tax-exempt money market funds saw outflows
Tax-exempt money market funds experienced outflows of $114.8 million, bringing total net assets to $137.90 billion in the week ended Feb. 20, according to The Money Fund Report, a service of iMoneyNet.com.
This followed an outflow of $338.5 million to $138.02 billion in the previous week.
The average, seven-day simple yield for the 197 weekly reporting tax-exempt funds inched up to 0.56% from 0.55% the previous week.
The total net assets of the 826 weekly reporting taxable money funds increased $5.11 billion to $2.665 trillion in the week ended Feb. 19, after an inflow of $14.34 billion to $2.660 trillion the week before.
The average, seven-day simple yield for the taxable money funds increased to 1.02% from 0.99% from the prior week.
Overall, the combined total net assets of the 1,023 weekly reporting money funds increased $5.00 billion to $2.803 trillion in the week ended Feb. 19, after inflows of $14.00 billion to $2.798 trillion in the prior week.
Treasury sells 7-year notes
The Treasury Department on Thursday auctioned $29 billion of seven-year notes, with a 2 3/4% coupon and a 2.839% high yield, a price of 99.438593. The bid-to-cover ratio was 2.49.
Tenders at the high yield were allotted 94.15%. All competitive tenders at lower yields were accepted in full. The median yield was 2.790%. The low yield was 2.720%.
Treasury announces auction details
The Treasury Department Thursday announced these auctions: $45 billion of 182-day bills selling on Feb. 26; $51 billion of 91-day bills selling on Feb. 26; and $22 billion of 364-day bills selling on Feb. 27.
Gary 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, or contact Vanessa Kim at 212-803-8474 for more information.