W.Va., Calif. Regents deals come to market as municipal bonds strengthen

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More calm than commotion was seen in the municipal market on Wednesday, according to a New York trader, as the Federal Reserve Board released the minutes of its most recent meeting and reiterated its intentions to keep rates on hold until an expected June hike.

Municipal bonds were stronger in late trading as West Virginia came to market with two big competitive sales while two negotiated deals from the Regents of the University of California were priced.

Before the Fed’s announcement, there was some bearishness evident in the market, the trader said.

“Everyone on the Street was very light and so negative on interest rates and then all of a sudden we went from a 3.11% to a 3.01% on the 10-year Treasury,” he said.

The municipal market, he said, hadn’t reacted one way or other, and instead remained “nice and calm” after the announcement.

“My feel is that it is still a little slow from a combination of end of the school year, Holiday week, etc.,” said one Southern trader.

“There is still a completely different dynamic in the primary vs. secondary," he said. "Deals seem to consistently do really well, while even though dealer inventories have come down some there are still a fair amount of bonds that just seem to linger.”

He added that the overall tone of the market has turned.

“Sentiment was terrible when the 10’s cheapened to the 3.12-3.13 range, as people thought 3.25 was next. Now we have a little rally and June redemptions ahead, which should make for a better near term tone and might help to lighten inventories.”

Primary market
West Virginia returned to the market on Wednesday, selling two competitive offerings totaling $632.4 million.

Citigroup won the state’s $330.345 million of Series 2018B Bidding Group 1 GO state road bonds with a true interest cost of 3.3689%.

Bank of America Merrill Lynch won the $302.055 million of Series 2018B Bidding Group 2 GO state road bonds with a TIC of 3.888%,

The deals are rated Aa2 by Moody’s Investors Service, AA-minus by S&P Global Ratings and AA by Fitch Ratings.

“The West Virginia competitive sales seemed to go really well, it had a slightly different structure (bi-annual maturities and an inconsistent amortization), but had a 10-year call and had a mostly 5% coupon structure,” said the Southern trader.

On Tuesday, the state sold $167 million of Series 2018A general obligation state road bonds in a negotiated deal priced by BAML.

Since 2010, West Virginia had sold about $1.09 billion of securities, including these sales, with the most issuance before this year occurring in 2015 when it sold $205 million. The Mountain State did not come to market at all in 2012 through 2014 or in 2016.
Also on Wednesday, BAML priced the Regents of the University of California’s $741.47 million of Series 20180 limited project revenue bonds.

BAML also priced the $281.895 million of Series 2018BA taxable general revenue bonds.

And BAML received the written award on the Regents’ $945.81 million of Series 2018AZ general revenue bonds

The Series AZ bonds and Series BA taxables are rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings while the Series 0 bonds are rated Aa3 by Moody’s and AA-minus by S&P and Fitch.

Morgan Stanley received the official award on the Georgia Housing and Finance Authority’s $110 million of Series 2018A single-family mortgage bonds. The deal is rated AAA by S&P.

Morgan Stanley also received the written award on the Houston Independent School District’s remarketing of $196.12 million of variable-rate limited tax schoolhouse and refunding bonds. The deal is backed by the Permanent School Fund guarantee program and is rated triple-A by Moody’s and S&P.

Wednesday’s bond sales
West Virginia:
Click here for the state’s $302.06M sale

Click here for the state’s $330.35M sale

Click here for the Regents’ $741.47M final

Click here for the Regents’ $741.47M deal

Click here for the Regents’ $281.895M deal

Click here for the Regent’s $945.81M deal

Click here for the Houston ISD $196.12M deal

Click here for the HFA $110M deal

Secondary market
Municipal bonds were stronger on Wednesday, according to a late read of the MBIS benchmark scale.

Benchmark muni yields fell as much as two basis points in the one- to 30-year maturities. High-grade munis were also stronger, with yields calculated on MBIS’ AAA scale falling as much as two basis points all across the curve.

According to Municipal Market Data’s AAA benchmark scale, municipals strengthened with yields falling three basis points in the 10-year general obligation muni and dropping five basis points in the 30-year muni maturity.

Treasury bonds were also stronger as stocks were trading lower.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 84.0% while the 30-year muni-to-Treasury ratio stood at 95.4%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasuries with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasuries; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 42,795 trades on Tuesday on volume of $9.33 billion.

California, Texas and New York were the states with the most trades, with the Golden State taking 14.907% of the market, the Lone Star State taking 12.719% and the Empire State taking 9.95%.

Treasury auctions $16B re-opened 2-year notes
The Treasury Department Wednesday auctioned $16 billion of one-year 11-month floating rate notes with a high discount margin of 0.028%, at a 0.033%, a price of 100.009127. The bid-to-cover ratio was 3.26.

Tenders at the high margin were allotted 83.23%. The median discount margin was 0.023%. The low discount margin was 0.010%. The index determination date is May 21 and the index determination rate is 1.895%.

Treasury sells $36B 5-year notes
Treasury also auctioned $36 billion of five-year notes, with a 2 3/4% coupon, a 2.864% high yield, a price of 99.472437. The bid-to-cover ratio was 2.52.

Tenders at the high yield were allotted 53.76%. All competitive tenders at lower yields were accepted in full. The median yield was 2.820%. The low yield was 2.740%.

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 Vanessa Kim at 212-803-8474 for more information.

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