Top quality municipal bonds finished flat on Tuesday, according to traders, as the first wave of new issuance swept into the market, led by issuers from New York, Massachusetts and Washington.
Secondary Market
The yield on the 10-year benchmark muni general obligation was unchanged from 1.45% on Monday, while the yield on the 30-year muni was steady from 2.11%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year Treasury was unchanged from 0.69% on Monday as the 10-year Treasury yield declined to 1.55% from 1.59% and the yield on the 30-year Treasury bond decreased to 2.27% from 2.30%.
The 10-year muni to Treasury ratio was calculated at 93.2% on Tuesday compared to 91.5% on Monday, while the 30-year muni to Treasury ratio stood at 92.8% versus 91.7%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 31,507 trades on Monday on volume of $7.85 billion.
Primary Market
The Massachusetts Bay Transportation Authority competitively sold two separate sales tax and assessment refinancing deals totaling about $337 million.
JPMorgan won the $218 million of Series 2016A senior sales tax capital appreciation bonds with a true interest cost of 2.40%. The CABs were priced to yield from 1.28% in 2021 to 2.67% in 2033.
Morgan Stanley won the $119 of Series 2016A assessment bonds with a TIC of 1.76%. The deal was priced to yield from 1.35% with a 5% coupon in 2024 to 2% at par in 2028.
The sale, which was the first competitive offering by the agency in 21 years, came in a perfect market environment, authority officials said.
"We borrowed at the lowest rate in the transit agency's history," said Mike Abramo, MBTA's CFO.
He added that there was a strong level of market interest, with seven banks bidding for the sales tax bonds and nine banks bidding on the assessment bonds.
"We were gratified by the level of support we got for the sale," he said.
The assessment bonds are rated Aa1 by Moody's Investors Service and triple-A by S&P Global Ratings and the senior sales tax bonds are rated Aa2 by Moody's and AA-plus by S&P.
On the short-term competitive slate, Colorado sold $600 million of Series 2016A general fund tax and revenue anticipation notes. Four groups won the TRANs, which are rated MIG1 by Moody's and SP1-plus by S&P.
JPMorgan Securities took $200 million with a bid of 2% and a $2,558,000 premium, an effective rate of 0.60%; Citigroup took $100 million with a bid of 3% and a $2,184,000 premium, an effective rate of 0.61%; RBC Capital Markets took $100 million with a bid of 2% and a $1,270,000 premium, an effective rate of 0.61%, RBC also took $75 million won with a bid of 2% and a $960,000 premium, an effective rate of 0.599%, and RBC took $25 million with a bid of 2% and a $321,000 premium, an effective rate of 0.595%; Morgan Stanley took $75 million with a bid of 2% and a $956,250 premium, an effective rate of 0.60% and also took $25 million with a bid of 2% and a $320,500 premium, an effective rate of 0.597%.
In the negotiated sector, Wells Fargo Securities priced the New York Metropolitan Transportation Authority's $529.61 million of Series 2016C transportation revenue bonds for retail investors ahead of the institutional pricing on Wednesday.
The issue was priced to yield from 0.86% with a 4% coupon in 2019 to 2.50% with a 5% coupon in 2039; a 2041 maturity was priced as 4s to yield 2.76%, a 2046 maturity was priced as 5s to yield 2.56% and a 2056 maturity was priced as 5s to yield 2.79%. The 2017 and 2018 maturities were offered as sealed bids.
The deal is rated A1 by Moody's, AA-minus by S&P and A by Fitch.
"The market feels better today, the bounce in Treasuries helping," said one New York trader. "If our flow order [for the MTA deal] is any indication, that deal will do fine on Wednesday. I like the long end of the muni market for the first time in a few weeks."
Bank of America Merrill Lynch priced the Port of Seattle, Wash.'s $251.51 million of first and intermediate lien revenue refunding bonds in four series.
The $19.57 million of Series 2016A first lien revenue refunding bonds not subject to the alternative minimum tax were priced as 5s to yield 0.58% in 2017, as 5s to yield 0.65% in 2018 and as 3s and 5s to yield 0.78% in a split 2019 maturity.
The $126.98 million of Series 2016B AMT first lien revenue refunding bonds were priced to yield from 0.96% with a 3% coupon in 2019 to 2.41% with a 5% coupon in 2032.
The $6.18 million of Series 2016C taxable first lien revenue refunding bonds were priced at par to yield from 1.00% in 2017 to 3.35% in 2032.
The $98.8 million of Series 2016 non-AMT intermediate lien revenue refunding bonds were priced to yield from 1.72% with 4% and 5% coupons in a split 2025 maturity to 2.16% with a 5% coupon in 2030.
The deal is rated Aa2 by Moody's, AA-minus by S&P and AA by Fitch.
Since 2006, the Port of Seattle has issued about $3.5 billion of debt, with the largest issuance occurring in 2012 when it sold $612 million of securities. The Port of Seattle is one of the largest container gateways in North America and has come to market every year since 2006, except for 2014.
JPMorgan Securities priced Baltimore County, Md.'s $150 million of Series 2016 taxable general obligation bonds. The issue was priced at par to yield from 0.60% in 2017 to 3.088% in 2036. The deal is rated triple-A by Moody's, S&P and Fitch.
Citigroup priced the Lone Star College System of Harris, Montgomery and San Jacinto Counties, Texas' $129.33 million of Series 2016 limited tax GO refunding bonds. The issue was priced as 5s to yield 1.05% in 2021 and to yield from 1.72% with a 5% coupon in 2026 to 2.57% with a 4% coupon in 2034; a 2038 maturity was priced as 4s to yield 2.68%. The deal is rated triple-A by S&P.
Citi also priced Travis County, Texas' $116.12 million of limited tax refunding bonds.
The $93.37 million of Series 2016A bonds were priced as 5s to yield from 0.68% in 2018 to 1.99% in 2030. The $22.75 million of Series 2016B taxables were priced at par to yield from 0.65% in 2017 to 1.766% in 2022. The deal is rated triple-A by Moody's and S&P.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $839.6 billion to $13.45 billion on Tuesday. The total is comprised of $4.77 billion of competitive sales and $8.68 billion of negotiated deals.
Ramirez to Update Forecast for Gross Muni
Ramirez & Co. continues to forecast gross municipal supply at $378 billion for 2016 with continued negative net issuance, but is planning an update at the end of the third quarter.
"We plan to update our gross supply forecast at the end of Q3 2016 after the slow-down in August. Gross supply through June 2016 was $211.06 billion while net supply was $24.18 billion," according to Ramirez's weekly commentary. "We see net muni market supply at -$16.71 billion over the next 30 days, a reversal of the trend."
Ramirez also looked at the top 10 states with the most outstanding debt.
"New York stands to shrink the most (1.2%), followed by Texas (0.9%), Massachusetts (0.9%), and California (0.9%), Ramirez said. "Conversely, Pennsylvania is set to expand the most (1.3%), followed by Illinois (0.4%)."
