Tuesday's strength in the primary spilled over into pricing on Wednesday as the handful of deals slated for issuance came to market with contracted spreads, traders said.
A $500 million unrated Texas Public Finance Authority revenue bond deal priced in the negotiated markets on Wednesday morning at rate that traders found to be "aggressively expensive" for investors. The deal, whose proceeds funded the Texas Windstorm Insurance Association, came in two maturies that were each priced at par. The $85.4 million piece maturing in 2017 carried a 5.25% coupon while the $414.6 million piece maturing in 2024 held an 8.25% coupon, according to data provided by Ipreo.
While the deal held attractive yields, the rewards came at a tangible risk, one that some investors said was too high to justify the low borrowing costs.
"It's a revenue bond for an entity I'm just not comfortable with," said a Midwest based trader. "I'd love to have 8.5% in my portfolio, but not at this cost."
The triple-A rated University of North Carolina at Chapel Hill also came to market on Wednesday with a $265.6 million taxable revenue refunding bond deal. Like the Texas deal, coupons were set to reflect pricing at par, probably to attract a retail investor, a group that typically prefers pricing this way, according to traders.
The coupons were set ranging from 0.759% in 2016 through 3.847% in 2034, according to data provided by Ipreo. For a taxable deal, investors found the pricing to be "relatively cheap" and believed it to have benefitted from the success seen in Tuesday's primary, said a southwest based trader.
The City of San Jose also tapped the negotiated markets for a $126 airport revenue refunding deal on Wednesday, netting lower borrowing costs as demand led to a repricing, traders said. The deal was rated A2 by Moody's Investor Services, A-minus by Standard & poor's and BBB-plus by Fitch Ratings. The $57.53 million section of the deal was priced to yield 0.34% on a 1% coupon in 2015 through 3.42% on a 3.375% coupon in 2026, according to data provided by Ipreo.
The non-AMT sections totaling $68.7 million were priced to yield from 3.12% on a 3.10% coupon in 2026 to 3.26% on a 5% coupon in 2031, according to Ipreo. On the long end, the deal priced at a discount to Municipal Market Data's single-A 5% general obligation curve, despite being an airport revenue bond, a much less secure source of debt service than the GO's promise of "unlimited taxing power," the southwest based trader said. The 2031 bond priced at a three basis point discount to Tuesday's yield curve of 3.29%.
NEW YORK STRONG
New York issuers dominated secondary trading Wednesday, as fund managers continued to clear out their holdings to make room for the newly issued Sales Tax Asset Revenue bond deal that tapped the market on Tuesday.
The Triborough Bridge and Tunnel Authority of New York emerged as one of the morning's most-traded credits, capturing over $90 million in aggregate dollars traded across three tranches as of noon Wednesday, according to data collected by Municipal Securities Rulemaking Board's disclosure website EMMA. The New York City Municipal Water Finance Authority also topped trading lists, with $24 milling traded on a single maturity as of noon, according to EMMA.
Traders expected the secondary market to be flooded with large New York issuers on Tuesday and Wednesday, as fund managers anticipated the issuance of the week's headline deal, the $2 billion New York City STARs deal.
Unlike such New York issuers as the Triborough, New York City Water and the city itself, as an seller of general obligation debt, the entity behind the STAR bonds is rarely in the market, according to traders. The Sales Tax Asset Receivable Corp. hasn't tapped the market since 2004, making the debt more valuable to traders trying to achieve diversity within their New York state specific funds, traders said.
Yields plunged by half on three separate Series 2000 Triborough Bridge and Tunnel Authority bond tranches on Wednesday after none had traded since issuance, according to EMMA. The yield on Series 2000 bonds maturing in 2018 dropped to 0.042% from 0.084% in round lot trading, while the yield on the bond maturing in 2017 fell to 0.06% from 0.122%, according to EMMA. The yield on Series 2000 bonds maturing in 2019 fell to 0.032% from 0.064%. Between the three tranches, 40 separate trades were made.
The newly issued New York City Municipal Water Finance Authority Water and Sewer 5s of 2036 were among the most-traded on Wednesday, according to EMMA. Yields softened on the bonds, rising to 3.316% on Wednesday from a low of 3.049% on Tuesday. As of 12:10pm on Wednesday, $45 million had been traded, according to EMMA.
Traders expected the popularity of the New York issuers in the secondary to fizzle out as positions became secured on the STAR deal.
SCALE AND TREASURY STRENGTH
After rallying on Tuesday's strength in the primary, municipal scales held largely steady on Wednesday, continuing to firm in the long end of the curve. Yields on bond maturing between 2015 through 2027 were unchanged, while those maturing between 2028 through 2044 strengthened one basis point, according to the Municipal Market Data triple-A 5% curve. The MMD curve strengthened up to three basis points on Tuesday following the successful sale of both the State of California general obligation deal and the New York City STARs deal.
The Municipal Market Advisor's triple-A 5% curve reported similar strength. Yields on the two-year and 10-year were unchanged at 0.31% and 2.20% respectively, while the 30-year fell one basis point to 3.32%
Treasuries weakened in afternoon trading on Wednesday compared to strengthening in the morning session. Yields on the two-year and 10-year closed flat at 0.59% and 2.57% respectively, while the 30-year close one-basis point stronger than the day prior at 3.27%.
