Top-rated municipal bonds finished stronger on Wednesday as a Port Authority of New York and New Jersey sale hit the screens and a deal from the Chicago Transit Authority was postponed until next week.
Primary market
Goldman Sachs priced the Port Authority's $831.85 million of consolidated bonds for retail investors on Wednesday ahead of the institutional pricing on Thursday.
The $731.85 million of Series 205 bonds were priced as 5s to yield from 1.15% in 2019 to 2.99% in 2037. A split 2042 maturity was priced as 5 1/4s to yield 2.99% and as 5s to yield 3.09%; a 2047 maturity was priced as 5s to yield 3.14%. A 2018 maturity was offered as a sealed bid while the 2057 maturity was not offered to retail.
The $100 million of Series 206 bonds subject to the alternative minimum tax were priced as 5s to yield from 2.64% in 2028 to 3.21% in 2037, 3.31% in 2042 and 3.36% in 2047.
The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
The Chicago Transit Authority’s $230 million of refunding Series 2017 capital grant receipts revenue bonds, originally slated to be priced on Wednesday, was delayed until next week, according to lead underwriter Morgan Stanley. The deal is rated A by S&P and BBB by Fitch.
The CTA said there's a possibility the deal will come next Tuesday.
"This would give the market time to absorb a heavy post-July 4th deal volume, including the [Chicago Public Schools] sale," a CTA spokeswomen said in an email, referring to CPS's sale of $500 million of unlimited tax dedicated revenue GO bonds on Monday. "We anticipate a well-received transaction next week."
Some market participants speculated that the reasons for the delay go beyond market conditions.
“I have a feeling that it has something to do with the fact that the CTA rail union workers are in favor of a strike,” said one Midwest trader. “According to reports from the [Chicago] Tribune, one third of the 3,000 union workers cast their ballots last week and it resulted in 98% favoring a strike.”
Since 2008, the Windy City’s transit authority has sold $4.87 billion of securities, with the lion's share of issuance coming in 2008 when it sold $2.44 billion. The authority did not come to market in 2009, 2012, 2013 or 2016. With pending sale, the authority will have issued more this year than in the past two years combined.
Barclays Capital priced the Massachusetts Port Authority’s $169.99 million of Series 2017A revenue bonds, subject to the alternative minimum tax.
The issue was priced as 5s to yield from 1.20% in 2018 to 3.15% in 2036, 3.25% in 2042 and 3.30% in 2047.
The deal is rated Aa2 by Moody’s and AA by S&P and Fitch.
Bank of America Merrill Lynch priced a $571.83 million composite bond issue for Wellstar, a Georgia non-profit healthcare system.
The Development Authority of Fulton County’s $179.69 million of hospital revenue bonds were priced to yield from 1.32% with a 3% coupon in 2019 to 3.46% with a 5% coupon in in 2037; a 2042 maturity was priced as 5s to yield 3.54% and a 2047 maturity was priced as 5s to yield 3.59%. A 2018 maturity was offered as a sealed bid.
The Cobb County Kennestone Hospital Authority’s $157.995 million of revenue anticipation certificates were priced to yield from 1.32% with a 5% coupon in 2019 to 3.46% with a 5% coupon in 2037; a 2042 maturity was priced as 5s to yield 3.54% and a 2047 maturity was priced as 5s to yield 3.59%. A 2018 maturity was offered as a sealed bid.
The Lagrange-Troup County Hospital Authority’s $62.69 million of revenue anticipation certificates were priced to yield from 1.32% with a 2% coupon in 2019 to 3.96% with a 3.875% coupon in 2037; a 2042 maturity was priced at par to yield 4% and a 2047 maturity was priced as 4s to yield 4.02%. A 2018 maturity was offered as a sealed bid.
The Griffin-Spalding County Hospital Authority’s $171.46 million of revenue anticipation certificates were priced to yield from 1.32% with a 3% coupon in 2019 to 3.46% with a 5% coupon in 2037; a 2042 maturity was priced at par to yield 4% and a 2047 maturity was priced as 3 3/4s to yield 4.08%. A 2018 maturity was offered as a sealed bid.
The deal is rated A2 by Moody’s and A by S&P
BAML priced the Metropolitan Government of Nashville and Davidson County Health and Educational Facilities Board’s $121.27 million of Series 2017A tax-exempt revenue bonds for the Vanderbilt University Medical Center and a $100 million taxable deal for the Medical Center.
The tax-exempts were priced as 4s to yield 4.02% in 2047 and as 5s to yield 3.61% in 2048. The taxables were priced at par to yield 4.172% in 2037.
The deal is rated A3 by Moody's.
In the competitive arena, the Maryland Transportation Authority sold $164.3 million of Series 2017 tax-exempt transportation facilities projects revenue refunding bonds.
Wells Fargo Securities won the bonds with a true interest cost of 3.08%. The issue was priced to yield from 0.91% with a 5% coupon in 2018 to 3.50% at par in 2040.
The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
The Florida Department of Transportation sold $288.71 million of Series 2017A right-of-way acquisition and bridge construction bonds.
Wells Fargo won the deal with a TIC of 3.32%. The issue was priced to yield from 0.90% with a 5% coupon in 2018 to 3.61% with a 3.50% coupon in 2047. The deal is rated Aa1 by Moody’s and AAA by S&P and Fitch.
Secondary market
The yield on the 10-year benchmark muni general obligation fell two basis points to 2.03% from 2.05% on Tuesday, while the 30-year GO yield dropped three basis points to 2.83% from 2.86%, according to the final read of Municipal Market Data's triple-A scale.
"Additional gradual rate hikes are likely to be appropriate over the next few years,” Federal Reserve Board Chair Janet Yellen said in prepared testimony delivered before the House Financial Services Committee Wednesday.
In the question and answer session, Yellen was asked how rates could be raised while inflation remains low. “The prudent course is to make some adjustment,” she said, since inflation is expected to go back to 2% in the next few years. If inflation expectations don’t pan out, the Fed can refrain from rate increases.
Additionally, she termed the recent inflation decreases as “temporary,” based on “special factors.”
It’s “premature” to decide inflation won’t go back to 2% in the coming years, and the Federal Reserve will alter its course if the inflation undershoot is “persistent,” she said.
Turning to the timing of balance sheet normalization, the exact timing “doesn’t matter a great deal,” to Yellen, though she said she would like to see it start “relatively soon” and expects by 2022 it will be at its “normal” level.
Yellen said no decision has been made about whether interest rates would be raised at the same time as balance sheet reduction.
Treasuries were stronger on her testimony. The yield on the two-year Treasury fell to 1.35% from 1.38% on Tuesday, the 10-year Treasury yield dropped to 2.32% from 2.36% and the yield on the 30-year Treasury bond decreased to 2.89% from 2.92%.
The 10-year muni to Treasury ratio was calculated at 87.3% on Wednesday, compared with 87.0% on Tuesday, while the 30-year muni to Treasury ratio stood at 97.8% versus 97.9%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 44,309 trades on Tuesday on volume of $8.61billion.
Gary Siegel contributed reporting on the Federal Reserve to this report.
