Variety pack: Lots of big municipal bond deals hit the screens
A wave of new supply swept into the market on Tuesday with a wide variety of issuers and sectors represented. Municipal bonds were trading mixed at midday.
Ramirez & Co. priced the New York City Transitional Finance Authority’s $1.2 billion of Fiscal 2019 Series S3 Subseries S3A building aid revenue bonds after holding a one-day retail order period. The pricing was accelerated by a day, sources said, owing to good demand.
The BARBs are rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings.
The TFA is also competitively selling $199.57 million of taxable Fiscal 2019 Series S3, Subseries S3B BARBs on Wednesday.
Raymond James & Associates priced Connecticut’s $850 million of Series 2018B&C special tax obligation bonds for infrastructure purposes.
The deal is rated AA by S&P, A-plus by Fitch and AA-plus by Kroll Bond Rating Agency.
Bank of America Merrill Lynch priced the Essentia Health Obligated Group’s $716.92 million of healthcare facilities revenue bonds on Tuesday. The deal consists of $677.38 million from the Duluth Economic Development Authority, Minn., and $39.55 million from Cass County, N.D.
The deal is rated A-minus by S&P and Fitch.
Wells Fargo Securities priced the Long Island Power Authority, N.Y.’s $430 million of Series 2018 electric system general revenue bonds after holding a one-day retail order period.
The deal is rated A3 by Moody’s and A-minus by S&P and Fitch.
In the competitive sector on Tuesday, the Metropolitan Government of Nashville and Davidson County, Tenn., sold $724.39 million of general obligation bonds.
BAML won the bonds with a true interest cost of 3.48648%.
The deal is rated Aa2 by Moody’s and AA by S&P.
Illinois sold $250 million of Build Illinois sales tax revenue bond in three sales.
UBS Financial won the $125 million of junior obligation tax-exempt Series B of October 2018 with a TIC of 4.2668%.
BAML won the $115 million of junior obligation tax-exempt Series A of October 2018, insured by Build America Mutual, with a TIC of 4.1620%.
PNC Capital Markets won the $10 million of junior obligation taxable Series C of October 2018 with a TIC of 4.0857%.
The deals are rated AA-minus by S&P and A-minus by Fitch.
The Virginia Public School Authority sold $110.02 million of Series 2018B school financing revenue bonds, 1997 resolution.
Barclays Capital won the bonds with a TIC of 3.3582%
The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
And Minneapolis sold $112.6 million in two deals consisting of $96.88 million of Series 2018 general obligation capital improvement green bonds and $15.72 million of Series 2018 GO library referendum refunding bonds. Pricing details were not immediately available.
The deals are rated AA-plus by Fitch.
Since 2008, the city has sold about $3.3 billion of bonds with the most issuance occurring in 2008 when it offered $818 million of securities. It sold the least amount in 2013 when it issued $111 million of bonds.
The market has been seeing more green bond issuance as of late. Last week, the Indiana Finance Authority sold $292 million of green bonds while the New York State Housing Finance Agency sold affordable housing green bonds.
Tuesday’s bond sales
Click here for the Essentia pricing
Click here for the LIPA pricing
Click here for the state pricing
Click here for the $115M sale
Bond Buyer 30-day visible supply at $13.28B
The Bond Buyer's 30-day visible supply calendar increased $361.1 million to $13.28 billion for Tuesday. The total is comprised of $4.50 billion of competitive sales and $8.78 billion of negotiated deals.
Municipal bonds were mixed on Tuesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to six-year and 10- to 26-year maturities, rose less than a basis point in the eight-year and 27- to 30-year maturities and remained unchanged in the seven- and nine-year maturities.
High-grade munis were mixed, with yields calculated on MBIS' AAA scale declining as much as one basis point in the one- to five-year and nine- to 26-year maturities, gaining less than a basis point in the seven- and eight-year and 28- to 30-year maturities and remaining unchanged in the six-year and 27-year maturities.
Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation remaining unchanged while the yield on 30-year muni maturity fell by as much as one basis point.
Treasury bonds were slightly stronger and stocks traded higher.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 86.3% while the 30-year muni-to-Treasury ratio stood at 102.0%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Previous session's activity
The Municipal Securities Rulemaking Board reported 38,242 trades on Monday on volume of $10.03 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 17.779% of the market, the Empire State taking 14.817% and the Lone Star State taking 8.649%.
Strong demand, outperformance expected
Municipal bonds should outperform U.S. Treasuries and demand should remain strong for the year — despite the current weakness, according to Jeffrey Lipton, managing director and head of municipal and fixed income research at Oppenheimer & Co. Inc.
With the volatility over the last week, relative value ratios cheapened with the 10- and 30-year municipal benchmarks at 87% and 103% respectively as of Oct. 12, Lipton pointed out in his weekly municipal strategy and research report.
He noted, the longer dated ratio was at its highest level for the year while the short-dated maturities are still relatively expensive.
“The march towards higher muni yields was largely driven by tepid demand as investors pulled about $848 million out of municipal bond mutual funds during the last reported period — representing the largest outflow since June 2017 according to Lipper U.S. Fund Flows,” Lipton wrote.
Though unpredictable, he believes demand for municipals remains strong overall. “The variability in demand can be attributed to shifting institutional buyer preferences thanks to a lower corporate tax rate along with retail buyer inertia tied to equity market volatility and prospects for higher rates,” Lipton wrote.
While Lipton said municipals may display further weakness even if Treasury yields move lower, he said, there is a cost of waiting to get invested. “Over the near term, we will be looking for convincing signs of retail capitulation to higher rates, an event that may not come,” he wrote.
Meanwhile, Lipton pointed out, the level of bid-wanted activity is another important measure of market viability that “bears close monitoring.”
“We think that specific market factors that have recently come about, such as the wide sell-off in bonds with a meaningful rise in interest rates, make for ample and compelling portfolio opportunity to transact a tax-loss swap,” he wrote.
“Completing municipal bond swaps at the appropriate time for effective portfolio management should hold high importance,” after investors consult their tax advisors about swap transactions, Lipton wrote.
Lipton said it is generally recommended investors consider tax-loss swaps before liquidity tightens at year-end “as transactional costs tend to be somewhat heavier given liquidity constraints” and future tax treatment of capital gains and losses may be altered by tax reform initiatives.
Treasury auctions bills
The Treasury Department Tuesday auctioned $40 billion of four-week bills at a 2.155% high yield, a price of 99.832389.
The coupon equivalent was 2.189%. The bid-to-cover ratio was 2.81. Tenders at the high rate were allotted 59.03%. The median rate was 2.120%. The low rate was 2.100%.
Treasury also auctioned $25 billion of eight-week bills at a 2.170% high yield, a price of 99.674500. The coupon equivalent was 2.207%. The bid-to-cover ratio was 3.13.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.