Supply surge continues with NYC, California issues well received
Municipal bond buyers were treated to a cornucopia of new issues as deals from New York and California flooded into the marketplace on Wednesday.
The municipal market was steady in the backdrop of a dip in U.S. Treasuries after rising slightly earlier in the day.
The New York City Transitional Finance Authority came with a $1.118 billion deal, bumping levels out longer by a few basis points from retail levels,while investors greeted offerings from California housing and public works and Los Angeles schools with enthusiasm.
Demand for the California new issues remained solid, according to a Golden State underwriter.
“The market is absorbing the large supply, so far so good,” he said on Wednesday as the $1.8 billion taxable general obligation issue from the Los Angeles Community College District deal was still taking indications of interest ahead of Thursday's official pricing.
“Demand is still pretty strong,” he said, adding that investors are cleaning up new issues across the country with little problem or delay.
He noted that Texas deals did very well on Tuesday, and other large generic deals around the country are also getting good attention from the buy side.
“The size and structure determines how well they do,” as well as any perceived uncertainty ahead of the election.
“Retail says they are staying on the sidelines, but then we end up seeing them participating,” he said. The most popular coupon structures in new issues include 4% and 5% coupons on the long end, he added.
The Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw inflows of $2.2 billion, the 25th week in a row the funds saw positive flows.
In secondary trading, municipals were steady to stronger, with yields on the AAA scales remaining flat on shorter maturities and falling by as much as one basis point out long on the curve.
Secondary trading in the tax-exempt market was mixed on Wednesday, but ultimately hinted at a slightly better bias around nine years and longer, according to Refinitiv MMD.
“Despite the meltdown in equities, Treasuries surprisingly pared gains from earlier in the day,” but failed to sustain a break through the 0.75% level.
“In the backdrop, stocks continued to take a drubbing amid surging coronavirus cases and reinstituted lockdown measures globally,” the analysts wrote.
Taxable munis remained in focus at The Bond Buyer’s California Conference.
In Tuesday’s breakout session “Coming to Market With Current Muni Curves Amid COVID,” panel members Greg Saulnier, managing analyst of U.S. municipal bonds at Refinitiv MMD, Christopher Fenske, head of Americas fixed income research at IHS Markit, and Pierce Lord, director of product development at ICE Data Services, spoke about taxables expanding role in the market.
“A lot of people are obviously using Treasury bonds or Treasury curves as their reference curve for a taxable muni bond and that works pretty well when the markets are very quiet and sleepy,” Lord said. “But as everyone saw in March and April, Treasuries moved in absolutely different directions than those taxable muni bonds. Which basically means that the spread that you had yesterday you might have to throw out today.”
He said that type of correlation between taxable munis and Treasuries has historically been the best indicator of how the market has been able to go about pricing the bonds, but he said industry participants should be asking if the market should now have a taxable muni curve as a reference curve.
“If you did have one, and it’s not assuming that it’s easy to make, then during those market volatile times you wouldn’t have to worry about Treasuries doing their own thing and could make it easier to track the market,” Lord said.
Fenske said taxables have a powerful tailwind right now.
“There’s a combination of a low-rate environment and you’ve got the Fed bond-buying program buying Treasuries, which is supporting the taxable market by driving down yields helping that market. You have a very rapid international expansion of that market as well … seeing tightening spreads, increasing demand and increased client base as well.”
He said taxable yield curves could be very useful to the market for risk-management purposes.
Respondents to MMD’s Fall survey said they don’t see taxable issuance going away any time soon, Saulnier said.
“At MMD, we actually do write a taxable one- to 30-year taxable muni curve and we have for quite a few years,” he said. “A few years back it was lacking in data points because the taxable sector wasn’t exactly traded frequently. That is certainly not the case anymore.”
Saulnier said the depth of taxable muni buyers has been proven over the past six months and “as long as rates stay in a space where it makes sense for issuers to refund via a taxable instrument when they can’t do an advance refunding tax-exempt anymore — and unless that changes — then it still makes sense to issue in that space.”
Ramirez & Co. priced and repriced the New York City Transitional Finance Authority’s (Aa1/AAA/AAA/NAF) $700 million of tax-exempt future tax-secured subordinate fixed-rate Fiscal 2021 Series D Subseries D-1 bonds.
The bonds were repriced to yield from 0.30% with a 5% coupon in 2022 to 0.79% with a 5% coupon in 2026 and to yield from 1.79% with a 5% coupon in 2034 to 2.80% with a 2.75% coupon and 2.77% with a 3% coupon in a split 2050 maturity.
The bonds had been priced for retail to yield from 0.30% with a 5% coupon in 2022 to 0.79% with a 5% coupon in 2026 and to yield from 1.82% with a 5% coupon in 2034 to 2.80% with a 2.75% coupon and 2.78% with a 3% coupon in a split 2050 maturity.
Ramirez also priced as a remarketing the TFA’s $218.2 million of Fiscal 2001 Series C bonds, Fiscal 2010 Subseries G-5 bonds and Fiscal 2013 Subseries S-6 bonds.
Additionally, the TFA competitively sold $200 million of taxable fixed-rate bonds in two series.
TD Securities won the $113.47 million of Fiscal 2021 Subseries D-2 future tax-secured subordinate bonds with a true interest cost of 1.8674%. The bonds were priced to yield from 1.322% with a 1.33% coupon in 2026 to 2.013% with a 2.02% coupon in 2030.
Jefferies won the $86.53 million of Fiscal 2021 Subseries D-3 taxable future tax secured subordinate bonds. The bonds were priced to yield from 2.20% with a 2.25% coupon in 2031 to 2.40% with a 2.50% coupon in 2033.
Frasca & Associates and Public Resources Advisory Group were the financial advisors. Norton Rose and Bryant Rabbino were the bond counsel.
Wells Fargo Securities priced and repriced the California State Public Works Board’s (Aa3/A+/AA-/NR) $502.6 million of Series 2021A forward delivery lease revenue refunding bonds for various capital projects.
The bonds were repriced as 5s to yield from 0.80% in 2022 to 1.93% in 2032. The bonds had been tentatively priced as 5s to yield from 0.84% in 2022 to 2% in 2032.
Goldman Sachs received the written award on the Los Angeles Unified School District, Calif.’s (Aa3/NR/AA+/AAA) $1.057 billion of Series 2020C Measure Q dedicated unlimited ad valorem property tax general obligation bonds consisting of $907.17 million of tax-exempts and $149.87 million of taxables.
The tax-exempts were priced to yield from 0.25% with a 3% coupon in 2021 to 2.21% with a 4% coupon in 2040. A 2044 maturity was priced as 4s to yield 2.33% and a 2045 maturity was priced as 3s to yield 2.59%. The taxables were priced at 100.148 with a 1.35% coupon to yield about 0.303% on Jan. 1, 2021. The all-in true interest rate on the bonds was 1.86%.
Citigroup received the official award on the California Health Facilities Financing Authority’s (Aa3/AA-/AA-/NR) $450 million of Series 2020 taxable senior revenue social bonds for the "No Place Like Home" program. The bonds were priced at par to yield from 0.417% (27 basis points above the comparable Treasury security) in 2022 to 2.329% (155 basis points above Treasuries) in 2033 and 2.529% (175 basis points above Treasuries) in 2035.
The state Treasurer’s Office said the bonds were designated as social bonds because they follow the Social Bond Principles adopted by the International Capital Markets Association.
The No Place Like Home program was approved by the voters in 2018 to provide housing and assistance to the state’s homeless population.
According to State Treasurer Fiona Ma, proceeds will be used by the state Department of Housing and Community Development. HCD will award funds from the NPLH program through at least four annual funding rounds; HCD estimates 4,500 NPLH housing units will be produced through these awards.
The bonds will be repaid from a portion of a 1% state tax on income in excess of $1 million, which was approved by voters in 2004.
This is the second bond sale for the NPLH program, which gives the state up to $2 billion in bond authority to provide funding to cities and counties to develop permanent supportive housing.
"The No Place Like Home awards are meant to take urgent, meaningful action to address California’s homelessness crisis," said State Treasurer Fiona Ma.
JPMorgan Securities priced the Port Authority of Allegheny County, Pa.’s (Aa3/AA-/NR/NR) $120.4 million of special revenue transportation bonds refunding series of 2020. The bonds were priced as 5s to yield from 0.30% in 2022 to 1.18% in 2029.
Wells Fargo priced the Upper Occoquan Sewage Authority, Va.’s (Aa1/AAA/AAA/NR) $199.7 million of Series 2020 taxable regional sewerage system revenue refunding bonds. The bonds were priced to yield from 0.297% at par in 2021 to 0.79% at par in 2025, and from 1.25% at par in 2030 to 2.155% with a 1.90% coupon in 2034, and to yield 2.741% with a 2.55% coupon in 2041.
RBC Capital Markets received the written award on Austin, Texas’ (Aa3/AA/AA/NR) $277.3 million of electric utility system revenue refunding and improvement bonds, consisting of $227.495 million of Series 2020A tax-exempts and $49.87 million of Series 2020B taxables.
On Thursday, BofA Securities is set to price the Los Angeles Community College District’s (Aaa/AA+//) $1.8 billion of taxable general obligation refunding bonds.
ICI: Muni bond funds see $2.2B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $2.2 billion in the week ended Nov. 21, the Investment Company Institute reported Wednesday.
It marked the 25th straight week that the funds saw inflows. In the previous week, muni funds saw an inflow of $1.428 billion, ICI said.
Long-term muni funds alone had an inflow of $2.116 billion in the latest reporting week after an inflow of $1.065 billion in the prior week.
ETF muni funds alone saw an inflow of $84 million after an inflow of $363 million in the prior week.
Taxable bond funds saw combined inflows of $13.387 billion in the latest reporting week after a revised inflow of $19.392 billion in the prior week, originally reported as a $19.372 billion inflow.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $2.959 billion after an inflow of $3.060 billion in the previous week, originally reported as a $3.037 billion inflow.
Some notable trades on Wednesday:
Brookhaven, NY 5s of 2022 traded at 0.28%-0.19%. Hamilton County Tennessee GOs 5s of 2023, traded at 0.25%. Prince Georges County, Maryland, 5s of 2023 at 0.24%. North Carolina GOs, 5s of 2029, at 0.80%-0.79%. Texas waters, 5s of 2029, at 1.02%-1.01%. King County Washington GOs 5s of 2037 traded at 1.57%-1.52%. Evergreen ISD 4s of 2039 traded at 1.84%-1.74%. Originally priced at 1.84%. King County Washington GOs 5s of 2045 traded at 1.88%-1.78% after pricing at 1.88%.
High-grade municipals were mixed on Wednesday, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields in 2021 and 2022 were unchanged at 0.19% and 0.20%, respectively. The yield on the 10-year muni fell one basis point to 0.93% while the yield on the 30-year dropped one basis point to 1.7`%.
The 10-year muni-to-Treasury ratio was calculated at ``119.4% while the 30-year muni-to-Treasury ratio stood at 109.0%, according to MMD
The ICE AAA municipal yield curve showed short maturities unchanged, with the 2021 maturity at 0.20% and the 2022 at 0.22%. The 10-year maturity dipped one basis point to 0.92% and the 30-year was unchanged at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 119% while the 30-year muni-to-Treasury ratio stood at 110%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields flat at 0.16% and 0.17% in 2021 and 2022, respectively, with the 10-year yielding 0.95% and the 30-year at 1.71%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.15% and the 2022 maturity flat at 0.16% while the 10-year was down one basis point to 0.92% and the 30-year dropped one basis point to 1.72%.
Treasuries were weaker as stock prices traded lower.
The three-month Treasury note was yielding 0.10%, the 10-year Treasury was yielding 0.78% and the 30-year Treasury was yielding 1.57%.
The Dow fell 3.07%, the S&P 500 decreased 3.05% and the Nasdaq lost 3.13%.