Municipal investors who had been keeping their cash on the sidelines as aggressively priced deals hit the market last week and early this week went in on the $225.79 million of Grand River Dam Authority revenue bonds priced by JPMorgan on Wednesday.
Buyers found the deal attractive because its bonds had higher yields than some of the triple-A deals sold recently. The deal's ratings were all in the single-A range.
Investors also said the bonds were appealing because the Grand River Dam Authority's credit fundamentals have been improving.
"We had our analyst look into the deal because we have not bought Grand River Dam Authority bonds in a while, and he said it was showing some positive credit trends," a trader in the south said.
The deal is rated A1 by Moody's Investors Service, A-plus by Standard & Poor's and A by Fitch Ratings.
The trader in the south also said the issuer hadn't come to market in a while, and buyers are always hungry for new issuances.
Grand River Dam Authority deal was priced with yields from 0.20% with a 3% coupon in 2018 to 3.32% with a 5% coupon in 2039.
The 2028, 2029, 2034 and 2039 maturities are split so bonds are sold both with 5% coupons and coupons below 4%.
"I've seen that starting to happen more in the Texas deals too," the trader in New York said. "We've seen where there is a 5% coupon in 2018 to 2026 years, and then a 3% coupon in 2027, 2028, 2029, and then 5% again. Underwriters are trying to grasp the retail market in the 15-year range and then be done with [retail buyers] and give the rest to institutional."
The bonds can be called at par in 2024, and have sinking funds on two term bonds in 2039. The deal is rated A1 by Moody's, A-plus by S&P and A by Fitch.
The deal had been repriced during the day from an originally scheduled $268.75 million, and the yield on the 2029 maturing with the 3.125% coupon was raised by one basis point to 3.16%.
Elsewhere In the Primary
The Los Angeles Department of Water and Power system's $450 million of revenue bonds entered their retail order on Wednesday with yields ranging from 1.09% with a 4% coupon in 2019 to 3.45% with a 4% coupon in 2039. The maturities ranging from 2030 to 2034, as well as the 2044 maturity, are not available for retail order.
The bulk of the deal, $144.175 million, is in the 2044 maturity. The bonds can be called at par in 2024 and earned ratings of Aa3 from Moody's Investors Service, and AA-minus from Standard & Poor's and Fitch Ratings.
RBC Capital Markets is the lead underwriter.
The McKinney Independent School District in Collin County, Texas' $99.27 million unlimited tax school building and refunding bonds were priced to yield from 0.27% with a 5% coupon in 2016 to 3.35% with a 4% coupon in 2039. They can be called at par in 2024, and have a sinking fund on a 2039 term bond.
There is a sealed bid on the 2015 maturity.
Moody's and S&P rated the deal triple-A, and Fitch rated it Aa2 with an underlying rating of AA.
The deal was originally scheduled to total $100.5 million. BOSC is the lead underwriter.
New Jersey Dominates Secondary
The Port Authority of New York and New Jersey's two-part deal and the New Jersey Economic Development Authority's $525 billion of school facilitates construction bonds that priced Tuesday dominated the secondary market on Wednesday after the bonds became free to trade.
In the morning and early afternoon bonds from the $400 million alternative minimum tax part of the Port Authority deal's 5s of 2044 and 5s of 2017 had a total trade amount of over $74.25 million and $24.35 million respectively, according to data provided by EMMA as of noon, EST. The 4.426s in 2034 from the taxable portion had even more trades, with its trade amount coming in over $82.8 million.
A trader in New York said even though the AMT and tax on the bonds "knocks out" some of his buyers, the deal attracted a lot of investors.
"It's the coupon structure, the bonds all have 5% coupon expect for two maturities on the short end," he said. "They priced the deal for institutional buyer."
He said the long maturities of both the AMT and taxable portions of the deal are being more actively traded than the short bonds because the deal was heavier on the long end, with $80.04 million on the 2044 maturity for the AMT section and $100.935 million on the 2034 maturity in the taxable part.
Traders told The Bond Buyer on Tuesday that they found the bonds expensive. The trader in New York said he thinks the days of getting AMT bonds 150 basis points, 200 basis points over Treasuries is over.
"[The New York and New Jersey Port Authority] bonds were only a little cheaper than the non-AMT stuff, but investors still bought it," he said.
Then in the afternoon the New Jersey Economic Development Authority revenue school facilities construction bonds topped secondary trading with $28.145 million of the 3.625s in 2032, over $108.2 million of the 5s in 2040, $26.535 million of the 4.2s in 2040, and $19.625 million of the 4s in 2032.
FOMC Minutes
The Federal Open Market Committee minutes for its September meeting emphasized their dependency on economic data to drive their decisions, and said that the Fed still expects to end tapering after the October FOMC meeting.
"It seems like there has been no urgency on the Fed's part to raise rates this year, but next year they were so clear to point out it will come from incoming inputs and data," the trader in the south said. "But in the job market there is not any sign of real inflation at this point."
Scales
Yields on municipal bonds rose by two basis points on bonds maturing in two to 13 years, according to Municipal Market Data's triple-A scale. They rose three basis points on bonds maturing in 14 to 23 years, and by as much as two basis points for 24- to 27-year maturities.
Bonds maturing in 28 to 30 years' yields rose by one basis point.
Treasuries mostly strengthened on Wednesday with the two-year note's yield dropping by six basis points to 0.46% from Tuesday's market close. The 10-year fell by four basis points to 2.36% and the 30-year by held steady at 3.06%.
