Yields were raised on the $700 million New York City Transitional Finance Authority future tax secured subordinate bonds as the municipal market continued to sell-off on Tuesday, and traders are conflicted over whether or not this means retail is interested in the bonds.
A trader in New York said the decision to raise the yields does not mean the deal is going badly. He said that, with the sell-off, most deals will adjust their pricing to align with the weakening market.
"This is why there are two days of retail order, so they can reprice and give retail what they want," he said. "TFA is an attractive name, those bonds will get nabbed up."
A spokeswoman for the TFA called the repricing a "standard operating procedure" in an email.
"Our general practice during retail order periods is to more or less keep pace with changes in interest rates in the overall market," she wrote. "So we increase yields 2 basis point in most of the shorter maturities where the general market was up 4 basis points. And in most of the longer maturities, TFA yields were increased the same 3 basis points as the general increase in overall muni market yields."
She wrote the TFA wants to keep yields as low as it can but needs to move with the market to maintain a high level of orders.
"Our maximum yield of 3.7 percent is still very low," she wrote.
A second trader in New York was not so confident, and believed the choice to increase the yields potentially indicates a lackluster reaction from the retail buy side.
"They're triple-A, they're New York, it's a high tax state," the second trader said. "If they were secure they could place the bonds they would not have raised yields."
The yields were raised the most on bonds maturing between 13 and 21 years, according to data given to The Bond Buyer by a source.
Yields on the bonds now range from 0.56% with a 4% coupon in 2017 to 3.73% with a 4% coupon in 2042. There is a sealed bid on the 2016 maturity.
The 2028 and 2029, the 2031 to 2034, and the 2039 and 2041 maturities are not available for retail.
The Authority had issued the bonds as multimodal bonds with an optional mandatory tender. The tender is in 2024, much longer than tenders typically are.
It used this structure for its last two issuances, in July and April, which were successful.
The bonds performance from the deal has been mixed. The spread on the 10-year from the July 7 issue was originally priced at 2.57%, 22 basis points wider than Municipal Market Data's triple-A benchmark general obligation bonds, according to data provided by MMD and EMMA. While the yield has dropped to 2.54%, the spread has widened out by 11 basis points as of the bond's last trading day on September 25.
The 10-year from the April issuance on the other hand has strengthened. It was originally priced at a yield of 2.80% which had a spread of 35 basis points. The yield has fallen to 2.37% as of the bond's last trading day on September 5, and the spread has tightened by 14 basis points.
New York City TFA bonds from previous issues were some of the most actively traded on EMMA Tuesday morning, which the first trader in New York said indicated interest in the bonds because it showed investors were trying to sell the bonds to get in on the new deal.
The New York City TFA 5s in 2021 and 5.25s in 2027 were both on the top 15 most actively traded bonds on EMMA. Both bonds had performed incredibly well since their initial pricing.
The 5s in 2021 were initially priced at a yield of 2% and a spread 85 basis points wide of the MMD triple-A GO curve, and the yield fell to 1.03% and spread to 64 basis points tight of the curve on Tuesday.
The 5.25s in 2027 were originally traded at a high yield of 5.48% and a spread of 164 basis points wide of the MMD benchmark, and on Tuesday were at a high yield of 1.55% and a spread 82 basis points tight of the MMD.
Everyone Wants Alaska
The Anchorage, Alaska, 4s in 2044 are still one of the top five most actively traded Cusips, according to EMMA. On Monday, traders told The Bond Buyer the appeal of the bonds is that they are a "diversifier" since there is not much Alaska paper in the market. A trader in the Midwest also said the bonds are appealing because of their rating, which is A-plus.
The bonds have strengthened from when they first became free to trade on Thursday, dropping from a high yield of 4.11% to 4.07% by Tuesday morning, but have held steady since Monday's market close.
