Municipals strengthened on Tuesday as the first of the large new-issue slate began to come to market and investors are banking on the long game that issuers will weather the COVID-19 storms.
The diversity of issuers coming to market this week will test how much appetite investors have with looming credit concerns for sellers of travel and education-related deals.
Large Texas and New York higher-ed exempt and taxable deals came while a Dallas airport deal also tested waters. Washington, the first state to report COVID-19 cases, ran with a $650 million competitive deal that was well received and will be a bellwether for state general obligation debt and move benchmark yields in directions that indicate how bullish investors are in munis.
Secondary trading was focused out longer but relatively muted as new-issues dominate. The ICE Data Services Municipal curve 30-year has moved nearly 12 basis points from July 1. Its 10-year hovered around 0.76%, down two basis points from yesterday but nearly 10 basis points from the start of the month.
Yields fell as much as three basis points on the AAA muni curves.
The short end was quiet. A $5 million-plus inter-dealer trade of Yale 5s of 2029 traded at 0.72%. New York City TFAs, 4s of 2040, traded at 1.92%-1.93%. University of Michigan 4s of 2045, traded at 1.76%-1.75%.
Quiet activity marked the start of the week Monday — not a surprise when looking at the size and diversity of the week’s new-issue calendar, according to Kim Olsan, senior vice president at FHN Financial.
“The typical pattern in recent weeks has been pre-marketing and pricings that occupy the first three days and then residual business with allocations left unfilled draws more attention to secondary inventories,” Olsan said.
She added there was an added benefit to the variety of issuance the market has been seeing in that it has defined credit and coupon spreads fairly well.
“Just this week alone there are more than 10 unique sectors set to receive issuance — certainly helpful to this month’s $30 billion+ in calls and maturities and August’s projected $40 billion figure,” she said. “The ‘receivable’ side of the market is the main driver right now allowing yields to hold steady and even show some performance from June’s mostly stagnant trading ranges.”
She said that in only 10 trading sessions this month, intermediate and long muni yields have moved more than they did throughout the whole month of June.
Primary market
Goldman Sachs priced the Rector and Visitors of the University of Virginia’s (Aaa/AAA/AAA/NR) $600 million of taxable general revenue pledge bonds.
The bonds were priced as a bullet 2050 maturity at par to yield 1.286% (+97 basis points over Treasuries).
Siebert Williams Shank & Co. LLC priced and repriced the cities of Dallas and Fort Worth, Texas’ (A1/A/A+/AA) $395.51 million of joint revenue refunding bonds, not subject to the alternative minimum tax, for the Dallas-Fort Worth International Airport.
The deal was repriced to yield from 0.61% with a 5% coupon in 2023 (+36 basis points over the MMD scale) to 1.88% with a 4% coupon in 2035 (75 basis points over MMD).
The deal had been tentatively priced to yield from 0.73% with a 5% coupon in 2023 to 2.01% with a 4% coupon in 2035.
UBS Financial Services, Cabrera Capital Markets, Loop Capital Markets and Rice Financial Products Co. are co-managers.
Siebert also priced the Dormitory Authority of the State of New York’s $328.275 million of taxable Series 2020A (Aa3/NR/A+/NR) State University of New York dormitory facilities revenue bonds.
The deal was priced at par to yield from 1.761% in 2026 to 2.592% in 2035 and 2.985% in 2040.
Citigroup priced the Wonderful Foundations Charter School Portfolio Projects’ $211.127 million of bonds for three entities.
The deal included the Public Finance Authority’s senior revenue bonds and subordinate revenue bonds; the California Infrastructure and Economic Development Bank’s senior revenue bonds and subordinate revenue bonds; and the Capital Trust Agency’s senior revenue bonds and subordinate revenue bonds.
Co-managers are BofA, Loop Capital, Academy Securities, Bancroft Capital, Barclays Capital, Cabrera Capital Markets, Drexel Hamilton, Mischler Financial Group, Raymond James & Associates, RBC Capital Markets, Rice Financial, Stern Brothers, UBS Financial Services, and Wells Fargo Securities.
JPMorgan Securities priced the Board of Regents of the Texas A&M University System’s (Aaa/AAA/AAA/NR) $158.17 million of taxable revenue financing system bonds.
The bonds were priced to yield from five basis points above the comparable Treasury security in 2021 to 140 basis points above Treasuries in 2035, 120 above in 2040 and 135 basis points above in 2047.
In the competitive arena, the state of Washington sold $645.8 million of general obligation bonds in four offerings. Montague DeRose & Associates and Piper Sandler were the financial advisors; Foster Garvey was the bond counsel.
Barclays Capital won the $291.17 million of Bid Group 2 various purpose GOs with a true interest cost of 2.9164%. The bonds were priced with 5% coupons to yield from 1.30% in 2036 to 1.61% in 2045.
BofA won the $202.755 million of Bid Group 1 various purpose GOs with a TIC of 1.4313%. The bonds were priced with 5% coupons to yield from 0.25% in 2023 to 1.26% in 2035.
BofA also won the $114.99 million of Series 2021B motor vehicle fuel tax and vehicle-related fees GOs with a TIC of 2.5027%. The bonds were priced with 5% coupons to yield from 0.20% in 2021 to 1.63% in 2045.
FHN’s Olsan said the exempt sales gave the market a reliable benchmark.
“The last time the issuer was in the market mid-February generic yields rallied 15 to 30 basis points in the ensuing two weeks,” she said.
Wells Fargo Securities won the $36.9 million of Series 2021T taxable GOs with a TIC of 0.3719%. The taxables were priced at par to yield from 0.25% in 2021 to 0.50% in 2024.
Since 2010, the state has sold about $28 billion of bonds, with the most issuance occurring in 2012 when it offered $350 million of bonds.
The Dallas Independent School District, Texas (Aaa/AAA/AAA/NR) sold $276.25 million of unlimited tax school building bonds, backed by the Permanent School Fund guarantee program.
Wells Fargo won the bonds with a TIC of 2.0012%. The issue was priced to yield from 0.18% with a 5% coupon in 2021 to 2.23% with a 2.25% coupon in 2050.
RBC Capital Markets and Estrada Hinojosa were the financial advisors; Bracewell and West & Associates were the bond counsel.
On Wednesday, Morgan Stanley is set to price Texas Transportation Commission’s (Aaa/NR/AAA/AAA) $1.047 billion of taxable general obligation mobility fund refunding bonds.
Secondary market
Municipals were stronger all across the curve, according to readings on Refinitiv MMD’s AAA benchmark scale Tuesday. Yields on the 2021 and 2023 GO munis fell three basis points to 0.19% and 0.21%, respectively. The yield on the 10-year GO muni dropped three basis points to 0.78% while the 30-year yield declined three basis points to 1.50%.
The 10-year muni-to-Treasury ratio was calculated at 127.9% while the 30-year muni-to-Treasury ratio stood at 115.0%, according to MMD.
The ICE AAA municipal yield curve showed short yields falling two basis points, to 0.170% in 2021 and 0.185% in 2022. The 10-year maturity fell three basis points to 0.759% and the 30-year lost three basis points to 1.529%.
ICE reported the 10-year muni-to-Treasury ratio stood at 132% while the 30-year ratio was at 115%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.19% and the 2022 maturity at 0.22% while the 10-year muni was at 0.79% and the 30-year stood at 1.52%.
The BVAL AAA curve showed the 2021 maturity yielding 0.18% unchanged and the 2022 maturity fell one basis point to 0.22% while the 10-year muni was two basis points lower at 0.77% and the 30-year stood two basis points down at 1.54%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were stronger as stock prices traded mixed.
The three-month Treasury note was yielding 0.147%, the 10-year Treasury was yielding 0.611% and the 30-year Treasury was yielding 1.304%.
The Dow rose 1.47%, the S&P 500 increased 0.54% and the Nasdaq lost 0.15%.
