The newly issued New York City Sales Tax Asset Receivable Corp. bonds strengthened in secondary trading on Thursday, indicating just how valuable the unique and high quality issuer is for fund managers.
After becoming free-to-trade at 9 a.m. Thursday morning, trading volumes exploded on the new STARs bonds, particularly on bonds with maturities ranging from 2024 to 2030, according to data collected from Municipal Securities Rulemaking Board's disclosure website EMMA. In some maturities, yields fell as much as 14 basis point, as traders pounced to get a piece of the deal.
"Once the dust settles, people are going to want to hold these and you're not going to see secondary market activity," said a New York based trader. "Traders need to get in there immediately if they want to make sure they end up with a piece."
At issuance the $2 billion deal was four-times oversubscribed on Tuesday, allowing for a repricing to make borrowing costs even cheaper, bumping down one to four basis points in maturities ranging from 2021 to 2033. Original yields on the debt ranged from 0.62% on a 3% coupon in 2017 to 3.44% on a 3.375% coupon in 2033, as previously reported.
Yields fell even further on Thursday. Yields on the 5s of 2024 and the 5s of 2029 each fell 14 basis points from their original yield offering in round lot trading to 2.18% and 2.59%, respectively, according to EMMA. Yields on the 5s of 2025 fell 13 basis points to 2.29%, while yields on the 5s of 2030 fell 12 basis points from its original yield offering to 2.66%, according to EMMA. Yields on the 5s of 2026 fell nine basis points to 2.40%.
The demand for the bond probably came from the diversifying potential the unique issuer could give to fund managers, traders said. The last time STAR tapped the market was in 2004, a contrast to other entities like New York City Municipal Water, the Metropolitan Transit Authority, or the Triborough Bridge and Tunnel Authority, which tap the primary market nearly monthly, traders said.
While traders were confident they would always have access to new debt from the other issuers, STAR's uniqueness caused a stir, driving yields down as traders piled in, traders said.
QUIET PRIMARY
Primary volume fell off on Thursday following two particularly active days on Tuesday and Wednesday. Of those few deals, the City of Mesa, Arizona tapped the market for $102 million in utility system revenue refunding bonds led by Bank of America Merrill Lynch, according to Ipreo. The deal was priced to yield from 1.03% on a 2% coupon in 2018 to 3.52% on a 3.25% coupon in 2030, according to Ipreo. The deal is rated Aa2 by Moody's Investors Services and AA-minus by Standard & Poor's.
Another regional deal to price was the taxable Village Center Community Development District's $172 million recreational revenue refunding deal, according to data provided by Ipreo. Citi priced the deal at par in the negotiated market at yields ranging from 1.303% in 2015 through 5.015% in 2036, according to Ipreo.
The deal is rated single-A by Standard & Poor's.
Pasco County, Fla., also tapped the negotiated market with a two part $104.91 million water and sewer refunding revenue deal, according to Ipreo. The $54.29 million Series 2014A bonds were priced to yield a range of 0.39% on a 5% coupon in 2016 through 3.27% on a 5% coupon in 2036, according to Ipreo. The $50.62 million Series 2014B bonds were priced to yield 3.48% on a 5% coupon in 2044 and 3.83% on a 4% coupon in 2044.
Both tranches were rated Aa2 by Moody's Investor Services, AA-plus by S&P, and double-A by Fitch Ratings.
SCALE STRENGTH
Municipals continued to strengthen on Thursday, especially in the belly of the curve. Yields on bonds maturing between 2015 through 2022 were unchanged while those maturing in 2022 strengthened one basis point, according to the Municipal Market Data triple-A 5% curve provided by TM3. Yields on bonds maturing between 2023 through 2036 fell three basis points while those maturing between 2037 through 2044 tightened two basis points, according to TM3.
Municipal Market Advisor's triple-A 5% curve also strengthened on Thursday. The two-year held steady at 0.31%, while the 10-year fell two basis points to 2.18%. The 30-year strengthened one basis point to 3.31%.
Treasuries continued to rally on Thursday, following escalating violence in the Middle East. Yields on the two-year fell three basis point to 0.58% from Wednesday's close, while the 10- and 30-year each dropped six basis points to 2.51% and 3.22%, respectively.
MUNI OUTFLOWS AHEAD
Tax-exempt money market funds reported outflows of $1.11 billion as total net assets fell to $255.08 billion in the week ended Sept. 22, according to The Money Fund Report, a service of iMoneyNet.com.
The losses follow outflows of $1.40 billion the week before.
The average, seven-day yield for the 418 weekly reporting tax-exempt money funds was steady at 0.01%, while the average maturity was unchanged at 41 days.
The total net assets of the 1,010 weekly reporting taxable money market funds catapulted to $2.372 trillion after the arrival of $23.82 billion in the week ended Sept. 23, following outflows of $12.56 billion the week before.
The average, seven-day yield for the taxable money funds was unchanged at 0.01%, while the average maturity was steady at 45 days.
