Prices of top-rated municipal bonds closed mostly lower on Thursday, traders said, with yields on some maturities rising by as much as two basis points in secondary trading.
In the primary, Wayne County, Mich., postponed its $187 million note deal while the New York Metropolitan Transportation Authority sold its $500 million notes in the competitive arena.
Wayne County put off its sale until next week after County Executive Warren Evans asked for state fiscal intervention to help dig it out of a $52 million budget hole.
Evans submitted a request late Wednesday asking the state to declare a financial emergency in the county. In a statement, he announced that he had submitted a formal letter to Michigan Treasurer Nick Khouri. Evans said state action was needed to implement his proposed recovery plan.
The county had had planned a $186.9 million sale of delinquent tax anticipation notes on Thursday. The delinquent tax anticipation notes are being priced by Bank of America Merrill Lynch.
"The request for state review will necessitate a delay in the sale of the notes, which was to have taken place on June 18," Wayne County Deputy Treasurer Christa McLellan said in a statement. "It is now expected to be rescheduled to Wednesday or Thursday of next week in order to give investors time to digest and react to the executive's announcement as well as understand the strengths and vitality of the delinquent tax program."
She said that while the sale was being delayed, it was not being cancelled.
"Although the executive's announcement has delayed our timing slightly, we are moving forward with a goal of closing on the notes before the end of this month," McLellan said.
Primary Market
The N.Y. MTA competitively sold $500 million of Series 2015A transportation revenue bond anticipation notes. The BANs were dated June 25 and due March 1, 2016.
Bank of America Merrill Lynch won $360 million of the BANs with a coupon of 0.50% and a premium of $594,000, an effective rate of 0.26%.
Goldman Sachs won $100 million of the BANs with a coupon of 0.25% and a premium of $27,000, an effective rate of 0.21%.
FTN Financial Capital Markets won $20 million of the BANs with a coupon of 1.0% and a premium of $104,000, an effective rate of 0.24%. FTN also won $10 million of the BANs with a coupon of 0.50% and a premium of $18,000, an effective rate of 0.24%. And FTN won $10 million of the BANs with a coupon of 0.50% and a premium of $20,399.99, an effective rate of 0.20%.
The notes were rated MIG1 by Moody's Investors Service, SP1-plus by Standard & Poor's and F1 by Fitch Ratings.
Wells Fargo Securities received the written award on the Lamar Consolidated Independent School District, Texas' $213.17 million of Series 2015 unlimited tax schoolhouse and refunding bonds.
The bonds were priced as 5s to yield from 1.07% in 2018 to 3.43% in 2040; a 2044 term bond was priced as 5s to yield 3.49%, a 2045 term was priced as 4s to yield 3.90%, and a 2048 term was priced at par to yield 4%. The bonds were backed by the Permanent School Fund guarantee program and rated triple-A by Moody's and S&P.
Siebert Brandford Shank received the official award on Broward County, Fla.'s $199.81 million of Series 2015 A&B water and sewer utility revenue refunding bonds.
The $42.26 million of Series A bonds were priced as 5s to yield 2.89% in 2028, 2.96% in 2029 and 3.04% in 2030. The $157.56 million of Series B bonds were priced to yield from 1.95% with a 5% coupon in 2021 to 3.54% with a 4% coupon in 2034. The issue was rated Aa1 by Moody's and AA-plus by S&P and Fitch.
Secondary Market
Prices of top-quality municipal bonds finished mostly lower on Thursday. The yield on the 10-year benchmark muni general obligation rose one basis point to 2.30% from 2.29% on Wednesday, while the yield on the 30-year GO was up two basis points to 3.29% from 3.27%, according to the final read of Municipal Market Data's triple-A scale. Yields on some shorter maturities were unchanged to down by a basis point.
Treasury prices were mixed on Thursday with the yield on the two-year Treasury note falling to 0.64% from 0.66% on Wednesday, while the 10-year yield rose to 2.35% from 2.31% and the 30-year yield increased to 3.13% from 3.10%.
The 10-year muni to Treasury ratio was calculated on Thursday at 97.9% versus 99.3% on Wednesday, while the 30-year muni to Treasury ratio stood at 104.8% compared to 106.5%, according to MMD.
Conclusions from the FOMC Meeting
The Federal Open Market Committee met in Washington on Wednesday and left interest rates unchanged. The Fed didn't change the language very much in their formal statement released after the meeting, which led to some confusion among investors.
"I think there are still on pace for doing something by September, language changes were minor and the reality is they continue to try to bring down the market expectations about number of hikes, pace and level they may reach over the next year to two years," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "I thought if there was something significant, it was the dots -- they have a lower trajectory. I think at best we are looking at two increases could only be one by the end of this year and two or three rates increases for next year."
Heckman said he sees volume slipping as the year progresses.
"The first half was dominated by refundings, issuers trying to get out in front of any rate increases. You're going to see that drop off, especially now since rates have moved a little higher. We think supply will be cut back from what has been a strong year," he said. "When you net out refundings, the supply isn't as heavy as some people give it credit. If we do see a dropoff in supply, we think it will add a firmer foundation to the muni market."
Tax-Exempt Money Market Funds Post Outflows
Tax-exempt money market funds experienced outflows of $970.8 million, bringing total net assets to $245.11 billion in the period ended June 15, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $1.99 billion to $246.08 billion in the previous week.
The average, seven-day simple yield for the 394 weekly reporting tax-exempt funds remained at 0.01% for a 111th straight week.
The total net assets of the 992 weekly reporting taxable money funds fell $14.99 billion to $2.370 trillion in the period ended June 16, after experiencing an inflow of $6.28 billion to $2.401 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.02% for the 22nd consecutive week.
Overall, the combined total net assets of the 1,386 weekly reporting money funds decreased $15.96 billion to $2.370 trillion in the period ended June 16, which followed an outflow of $14.12 billion to $2.631 trillion the week before.
