Hawaii's $1 billion general obligation sale, the biggest deal of the week, met with high demand in retail pricing Wednesday, even though traders said some of the bonds were unusually priced.
The retail order period was for the tax-exempt $784.7 million two-part issuance that is expected to sell for institutional investors on Thursday. The tax-exempt part is comprised of $575 million GO bonds and $209.7 million GO refunding bonds.
Traders said they were surprised that bonds in the $575 million part, which mostly had coupons of 3% to 4% on its maturities, were priced at similar yields to the GO refunding bonds, which all carried 5% coupons.
"What's weird is the sales concession is not that great, that's not exciting for people" a trader in New York said. "Retail is going to want more of a take-down [on the price]. It's a pretty ballsy move [for the issuer]."
In both tax-exempt parts, bonds maturing from 2019 to 2024 have the same yield, even though the GO bonds have 3% and 4% coupons while the GO refundings all have 5%. For the 2025 and the 2026 maturities the GO refunding bonds' yields are 10 basis points higher than the GOs with 3% or 4% coupons.
A trader in Chicago agreed that this was strange, but said the deal will do well because its "a size deal for Hawaii." He expects it to get a nice retail reception.
Yields on the $575 million section range from 1.25% with a 3% coupon in 2019 to 3.55% with a 3.50% coupon in 2034.
Bonds maturing in 2027, 2028, from 2029 to 2032 and a second 2034 maturity are not available for retail order.
The $209.73 GO million refunding bonds have yields from 1.25% with a 5% coupon in 2019 to 2.66% with a 5% coupon in 2026.
All the bonds can be called at par in 2024 and they are rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Low Coupon Will Draw Retail to NYC Waters
Traders anticipate investor appetite for the $379.6 million New York City Municipal Water Finance Authority water and sewer system resolution revenue bonds during their retail order period on Wednesday, even though retail brushed off an offering of New York City Transition Finance Authority bonds last week.
This is because two of the bonds' four maturities available for retail order offer coupons below 4%, traders said, while the TFA bonds had higher coupons than retail typically purchases.
The 2029 maturity has a 3.25% coupon and the 2036 maturity has a coupon of 3.625%.
"I think you'll see the '29s blow out for retail first, then the '36s," a trader in New York said. "If you can get 3s inside of '30 that's a win. That's where you want to be."
He said that he is confident the '29s will do very well on Wednesday and that most bonds from the deal will be in demand because the Authority's rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch Ratings.
Yields on the bonds ranged from 2.85% with a 5% coupon in 2028 to 3.52% with a 5% coupon in 2045.
He did say the 2045 maturity might have some problems, because retail does not like going out that far on the curve. Even though that maturity offers yield, going out that far mainly benefits issuers because the low rate environment allows them to issue "super cheap."
"That's not something retail is going to give a [expletive] about, that's for sure," he said.
A trader in California also said retail will target the lower-coupon bonds and predicted institutional investors might find the credit more attractive than triple-A because it gives them a bit of yield.
The bonds can be called at par in 2024. Ramirez & Co. is the managing underwriter on the deal.
Primary
The $193.5 million Missouri Joint Municipal Electric Utility Commission's power project revenue bonds issued for the Plum Point Project had yields from 0.68% with a 5% coupon in 2017 to 3.55% with a 5% coupon in 2034.
Wells Fargo was the lead underwriter on the bonds, which can be called in 10 years and carry ratings of A3 from Moody's and A-minus from S&P and Fitch.
For investors hungry for triple-A, $250.3 million Board of Regent of University of Texas system revenue financing system bonds offered yields from 0.34% with a 2% coupon in 2016 to 3.44% with a 4% coupon in 2037.
Most bonds have an optional call in 10 years but the 2025 and the 2026 maturities do not, and the 2035 maturity has an optional call in 2019 at par.
The 2035 maturity is also a term bond with a sinking fund on it.
Morgan Stanley is the managing underwriter.
Scales
Municipal bonds' held steady on Wednesday across the curve, according to Municipal Market Data's triple-A scale.
Treasuries mostly strengthened, though two-year note yield held steady at 0.55% from Monday's market close. The 10-year fell by three basis points to 2.35% and the 30-year by two basis points to 3.07%.
