Secondary muni market in a holding pattern as primary keeps focus
Large deals from New York, Texas and Wisconsin issuers came to market on Wednesday delighting buyers looking for new supply and issuers looking to offer bonds at lower rates.
Municipals were little changed with yields remaining steady along the AAA GO scales, not moving off recent levels.
"Fluctuations in the stock market would normally affect the interest rate market, however given how low yields are currently, along with broader uncertainty regarding what's happening at the federal legislative realm, the market is in a wait-and-see approach," a New York trader said. "As such, we won't see major movement in benchmarks until there is more clarity from the feds."
Wednesday progressed with lighter trading, a steady tone and still-present demand in the face of virtually no price adjustments, according Jeffrey Lipton, managing director at Oppenheimer & Co.
“Indications are that many participants are sitting on the sidelines ahead of this week's generous calendar,” he said.
“Technicals are now less compelling given that the summer reinvestment campaign has moved beyond its peak,” he said. “Fund flows may continue to ebb, but we do think that the trajectory for quality assets should remain positive.”
Lipton said the muni bond market remains sensitive to prevailing headlines, with a heavy focus on state and local government’s fiscal challenges. In addition, enterprise revenue displacement being the subject of editorials, interviews and rating agency reviews and actions is also occurring, according to Lipton.
“We expect the attention to continue and even intensify as credit pressure likely builds and funding needs get ensnared in the political process,” especially ahead of the November presidential election, Lipton said.
“We foresee a degree of volatility through the balance of the year and into 2021, but we maintain that the asset class will continue to offer portfolio diversification and above average credit quality with overall resiliency meeting ongoing demand,” he said.
Goldman Sachs priced the New York Industrial Development Agency’s (A2/AA/NR/AA+) $927.44 million deal for the New York Yankees.
The issue consists of $811.42 million of Series 2020A tax-exempt and $116.02 million of Series 2020B taxable payment in lieu of taxes (PILOT) revenue refunding bonds.
The tax-exempts were priced to yield from 1.37% with a 5% coupon in 2028 to 1.93% with a 4% coupon in 2032, to yield from 2.56% with a 3% coupon in 2036 to 2.71% with a 3% coupon in 2040. A split 2045 maturity was priced as 4s to yield 2.73% (uninsured) and 2.49% and a split 2049 maturity was priced as 3s to yield 3.10% (uninsured) and 2.90%.
Assured Guaranty Municipal Corp. insured the issue except for parts of the split 2045 and 2049 maturities, which are rated Baa1 by Moody’s Investors Service and BBB+ by Fitch Ratings.
The taxables, insured by AGM, were priced at par to yield from 2.681% in 2033 (+200 basis points to UST) to 2.781% in 1035 (+210 bps UST) and 1.436% in 2040 (+175 bps UST)
Raymond James & Associates priced the New York City Municipal Water Finance Authority’s (Aa1/AA+/AA+/NR) $566.175 million of Fiscal 2021 Series AA tax-exempt fixed-rate water and sewer system second general resolution revenue bonds for institutions after a one-day retail order period.
The Fiscal 2021 Subseries AA-1 bonds were priced in a triple-split 2050 maturity as 3s to yield 2.43%, as 4s to yield 2.18% and as 5s to yield 1.98%.
The Fiscal 2021 Subseries AA-2 bonds were priced to yield from 0.75% with a 5% coupon in 2028 to 1.25% with a 5% coupon in 2032 and to yield 2.17% with a 3% coupon in 2040, 2.02% with a 4% coupon in 2042 and 2.05% with a 4% coupon in 2043.
BofA Securities priced the Public Finance Authority, Wis.’ (NR/A+/A+AA/A+/NR) $313.6 million of Series 2020A tax-exempt and $219.985 million of Series 2020B taxable hospital revenue bonds for the Renown Regional Medical Center.
The exempts were priced to yield from 0.43% with a 5% coupon in 2022 to 2.41% with a 4% coupon in 2040. A triple-split 2045 maturity was priced as 3s to yield 2.63% (AGM insured) and 2.88% and as 4s to yield 2.55%. The taxables were priced at par to yield 3.09% (AGM insured) and 3.34% in a split 2050 maturity.
Siebert Williams Shank priced Harris County, Texas’ (Aaa/NR/AAA/NR) $221.635 million of Series 2020A permanent improvement refunding bonds. The bonds were repriced to yield from 0.12% with a 5% coupon in 2021 to 1.80% with a 3% coupon in 2040; a 2045 maturity was priced as 3s to yield 2.00%
Siebert Williams Shank priced and repriced Memphis, Tenn.’s (Aa2/AA+/NR/NR) $123.525 million of Series 2020B sanitary sewerage system revenue and revenue refunding bonds.
The bonds were repriced as 5s to yield from 0.11% in 2021 to 1.59% in 2040 and 1.75% in 2045. The bonds had been tentatively priced as 5s to yield from 0.17% in 2021 to 1.64% in 2040 and 1.80% in 2045.
Citigroup priced the South Carolina State Housing Finance and Development Authority’s (Aaa/NR/NR/NR) $123.28 million of Series 2020B mortgage revenue bonds not subject to alternative minimum tax.
The bonds were priced at par to yield from 0.25% and 0.30% in a split 2022 maturity to 1.90% and 1.95% in a split 2032 maturity, 2% in 2035, 2.15% in 2040, 2.35% in 2045 and 2.45% in 2051. A 2052 maturity was priced as a PAC bond to yield 0.98% with a 3.25% coupon with an average life of 5.01 years.
Citigroup received the written award on the Indianapolis Local Public Improvement Bond Bank’s (Aaa/NR/AAA/NR) $134.855 million of Series 2020E taxable refunding bonds and $50 million of Series 2020D tax-exempt bonds for the Metropolitan Thoroughfare District’s IndyRoads.
Raymond James received the official award on Pflugerville, Texas’ (Aa1/NR/NR/NR) $113.88 million of Series 2020 combination tax and limited revenue certificates of obligation; Series 2020A limited tax bonds; Series 2020B limited tax refunding bonds; and Series 2020C Series 2020C taxable limited tax refunding bonds.
On Thursday, Jefferies is expected to price Chicago’s (NR/A/A/A+) $1.2 billion of general airport senior lien bonds for O’Hare International Airport.
In the past month, California has issued bonds twice to help veterans in the Golden State through the state’s Department of Veterans Affairs (CalVet).
On Tuesday, the CalVet competitively sold $96.68 million of general obligation bonds. The GOs were sold in two offerings: Morgan Stanley won the Bid Group A bonds with a true interest cost of 2.464% and JPMorgan Securities won Bid Group with a TIC of 2.034%.
The first deal on Sept. 10 consisted of $97.18 million of home purchase revenue bonds. The bonds were priced by RBC Capital Markets and veteran-owned Academy Securities as joint senior managers. Disabled veteran firms Amerivet Securities and Mischler Financial Group served as co-senior managers.
The all-in true interest cost was 2.379%. The bonds yielded from 0.20% in 2021 to 2.45% in 2045.
“I am happy we are able to do this sale for our veterans,” California State Treasurer Fiona Ma said. “In previous transactions, the veterans have expressed their appreciation. I am glad the state of California is able to give back to the people who have given so much.”
Funds from the sales will be used by CalVet to provide home loans to veterans in California. The home loan program was created in 1921 and has provided loans to more than 425,000 veterans throughout the state.
ICI: Muni bond funds see $1.99B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $1.986 billion in the week ended Sept. 16, the Investment Company Institute reported Wednesday.
It marked the 20th straight week that the funds saw inflows. In the previous week, muni funds saw an inflow of $1.788 billion, ICI said.
Long-term muni funds alone had an inflow of $1.708 billion in the latest reporting week after an inflow of $1.457 billion in the prior week.
ETF muni funds alone saw an inflow of $278 million after an inflow of $331 million in the prior week.
Taxable bond funds saw combined inflows of $15.465 billion in the latest reporting week after an inflow of $13.419 billion in the prior week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $21.732 billion after a revised inflow of $4.113 billion in the previous week, originally reported as a $4.139 billion inflow.
Some notable trades Wednesday:
High-grade municipals were little changed Wednesday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Yields were flat in 2021 and 2022 at 0.12% and 0.13%, respectively. The yield on the 10-year muni slipped one basis point to 0.83% while the 30-year yield remained at 1.58%.
The 10-year muni-to-Treasury ratio was calculated at 122.8% while the 30-year muni-to-Treasury ratio stood at 110.6%, according to MMD.
The ICE AAA municipal yield curve showed the 2021 maturity unchanged at 0.12% and the 2022 maturity flat at 0.13%, the 10-year maturity steady at 0.79% and the 30-year flat at 1.59%.
The 10-year muni-to-Treasury ratio was calculated at 122% while the 30-year muni-to-Treasury ratio stood at 110%, according to ICE.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.13%, the 2022 maturity at 0.14%, the 10-year muni at 0.85% and the 30-year at 1.59%.
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 steady at 0.80% and the 30-year unchanged at 1.58%.
Treasuries were little changed as stock prices traded lower.
The three-month Treasury note was yielding 0.11%, the 10-year Treasury was yielding 0.68% and the 30-year Treasury was yielding 1.42%.
The Dow fell 1.84%, the S&P 500 decreased 2.14% and the Nasdaq lost 2.82%.