With close to $15 billion of new volume headed into the municipal market this week, it will be dicey for issuers and underwriters to get the deals done given the heavy glut of paper pricing into an uncertain environment, according to a New York underwriter.
New York City is putting to the test investor appetite for more than $1 billion of bonds while a California issuer will offer taxable green bonds to international investors on Wednesday with a planned listing on the London Stock Exchange, the first municipal issuer to go directly to European investors.
“The SFPUC is committed to building low-carbon, socially inclusive infrastructure. Building off of our work last year to align project impacts with the UN sustainable development goals, we see listing in Europe as another way to reach new investors and participate in the global green bond market. We hope this may serve as an example for other U.S. muni green bond issuers," said Chief Financial Officer and Assistant General Manager, Business Services,
Eric Sandler.
On Monday, municipals ended one to four basis points weaker on certain AAA scales.
Per New York's issue, "with the recent Moody's downgrade to NYC (AA2) and the addition of $2.4 billion New York State Dorm PITs to this week’s competitive slate it should be no surprise that in today’s retail order period day one, NYC 5s of 2031 and 5s of 2035 (30c) indicate yields of 1.75% and 2.06% +80 and +85 basis points versus spreads last week closer to +75/+80 basis points,especially as the Treasury complex is adjusting from its weeks-long trading range 0.64%/0.67% in 10 years to today’s 0.75%," said Peter Franks, senior analyst, U.S. municipal bonds at MMD Refinitiv.
The muni market should be able to handle the supply as investors have available cash, however, the New York trader said there are many cross currents plaguing the market, including COVID-19, the potential for a stimulus bill, and the future of the economy to name a few. “The market doesn’t like uncertainty,” he said.
The slate of negotiated and competitive volume is historically high for weekly supply in recent years, the underwriter said.
“The supply will weigh heavily on the market and that will make for a challenging market,” he said. “You want to get the supply put away, but it might take adjusted levels to get that done,” he said.
He noted the market is expecting to see excessive supply throughout the rest of the month ahead of the Nov. 3 presidential election.
Meanwhile, the DASNY deal normally offers debt in the negotiated sector, which allows the senior manager to garner widespread investor interest,” the underwriter said. “With the dealers being more cautious, it could be a challenging sale, but only time will tell,” he added. This week’s market conditions come on the heels of an increase in bid wanted lists last week and slightly negative bond cash flows after over 15 weeks of positive inflows, the underwriter noted.
Primary market
Siebert Williams Shank priced New York City’s (Aa2/AA/AA/NR) $1.1 billion of tax-exempt fixed-rate general obligation bonds for retail investors. The bonds will be priced for institutions on Wednesday after a second day of retail orders Tuesday.
The deal was priced for retail to yield 0.43% on 5s of 2022 while 5s of 2030 at 1.66%, and the long bond, 2.75s of 2044 at 2.85%.
New York City’s central treasury balance (funds available for expenditure) stood at $7.28 billion as of Sept. 30, the city comptroller’s office said Monday. At the same time last year, the city had $5.03 billion.
The authorized modified FY 2020 budget for COVID-related spending is $4.01 billion. As of Sept. 30, preliminary data for fiscal 2020 shows the city accrued $2.62 billion of COVID related expenditures for the fiscal year.
Fiscal 2020 expenditures are $1.39 billion below the June modification estimates due to the rolling of some of the planned COVID related spending into fiscal 2021. Although the fiscal 2021 budget assumed only $118 million of COVID related spending, commitments for COVID related spending through September were $1.93 billion.
On Tuesday, JPMorgan Securities is set to price the Children’s Hospital of Philadelphia’s (Aa2/AA/NR/NR) taxable corporate CUSIP bonds. Also Tuesday, RBC Capital Markets is expected to price the Virginia Small Business Financing Authority’s $377 million of revenue bonds for the Obligated Group of National Senior Campuses Inc.
BofA is expected to price the Hampton Roads Transportation Accountability Commission, Va.’s (Aa2/AA//) $600 million of senior lien revenue bonds for the Hampton Roads transportation fund on Tuesday.
In the competitive arena Monday, Montgomery County, Tenn., (Aa2/AA//) sold $114.75 million of GOs in two offerings.
Wells Fargo won the $89.635 million of Series 2020B tax-exempts.
Raymond James won the $25.115 million of Series 2020c taxables.
Cumberland Securities was the bond counsel; Bass Berry was the bond counsel.
On Tuesday, Somerville, Mass., (Aa1/AA+//) is selling $130 million of unlimited tax GO municipal purpose loan of 2020 bonds.
HilltopSecurities is the financial advisor; Locke Lord is the bond counsel.
Howard County, Md., (Aaa/AAA/AAA//) is selling $110.27 million of taxable refunding GOs in two offerings consisting of $83.935 million of Series 2020E consolidated public improvement bonds and $26.335 million of Series 2020G metropolitan district bonds.
Davenport & Co. is the financial advisor; McKennon Shelton is the bond counsel.
Transportation is in the spotlight on Wednesday, when Morgan Stanley is expected to price Hawaii’s (A1/A+//) $575 million of airport system revenue bonds consisting of AMT and non-AMT tax-exempts and taxable bonds. The Maryland Department of Transportation (Aa1/AAA/AA+/) is competityively selling $300 million of consolidated transportation revenue bonds. PFM Financial Advisors and People First Financial Advisors are the financial advisors. Kutak Rock is the bond counsel.
On Thursday, the Dormitory Authority of the State of New York will competitively sell about $1.9 billion of state personal income tax revenue bonds in six offerings. DASNY's sales consist of $486.365 million of Series 2020A Bidding Group 2 PITs, $485.085 million of Series 2020A Bidding Group 5 PITs, $439.855 million of Series 2020A Bidding Group 3 PITs, $415.705 million of Series 2020A Bidding Group 4 PITs, Series 2020A $53. 293 million of Bidding Group 1 bonds and $48.155 million of Series 2020B taxable PITs.
Secondary market
Some notable secondary trades: Northside, Texas ISD, 5s of 2022, traded at 0.19%. There were clear movements in the high-grade market, with Wake County, North Carolina GOs, 5s of 2026 at 0.38%-0.36%. Georgia GOs, 5s of 2026, at 0.44%. Maryland GOs, 5s of 2028 at 0.73%-0.72%. Fairfax County, Virginia 5s of 2032 at 1.13%-1.12%. Out longer, NYC TFA subs, 4s of 2045 at 2.43% and Charleston 5s of 2049 at 1.70%-1.50%.
Last week, the most traded muni sector was industrial development followed by education and utilities, IHS Markit said.
Last week, the most traded muni sector was industrial development followed by education and utilities, IHS Markit said.
On Monday, high-grade municipals were weaker by one to three basis points, according to final readings on Refinitiv MMD’s AAA benchmark scale. The 10-year muni-to-Treasury ratio was calculated at 1.18%% while the 30-year muni-to-Treasury ratio stood at 1.06%%, according to MMD.
The ICE AAA municipal yield curve showed short maturities steady, with the 2021 maturity at 0.12% and the 2022 maturity at 0.14%. The 10-year maturity was up one and a half basis points to 0.855% and the 30-year was at 1.67%, plus two basis points. The 10-year muni-to-Treasury ratio was calculated at 115.0% while the 30-year muni-to-Treasury ratio stood at 104.0%%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields at 0.13% in 2021 and 0.14% in 2022 while the 10-year muni was at 0.90% and the 30-year was at 1.64%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.11%, the 2022 maturity unchanged at 0.13%, the 10-year up three basis points to 0.87% and the 30-year up three basis points to 1.66%.
Lynne Funk contributed to this report.
