Taxables are set to dominate the primary on Tuesday, and yield-hungry investors must be thanking the muni market's higher powers that are providing them with a plethora of choices.
But while the taxable bonds may pique investors' interest, all is not good for issuers since the muni market started to sell off on Monday on a stronger than expected ISM manufacturing index and yields continued to rise on Tuesday morning. Investors are speculating the sell-off and the surge in issuance this week may force underwriters to price deals with higher yields.
Here's your Tuesday playbook, and remember for more muni market updates follow me on Twitter @hillaryflynnBB and send tips to
Primary
- The negotiated calendar is topped by the $350 million Missouri Health and Education Facilities Authority revenue bond issue for Mercy Health that Bank of America Merrill Lynch is scheduled to price. The bonds are rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's. S&P recently revised its outlook of Mercy Health to negative to reflect its view of Mercy's operating losses in fiscal 2014, following a recent history of light operations, coupled with the opening of a new Joplin facility. S&P credit analyst Suzie Desai said while the new facility is a business positive it worries the Joplin facility could create additional pressure at a time when operations are weaker. Proceeds from the bonds will be used to finance a replacement hospital for the one destroyed during the May 2011 Joplin, Mo., tornado, new facilities in St. Louis, and improvements to Mercy Hospitals in St. Louis and Springfield, Mo., as well as facilities in Oklahoma City and Arkansas.
- The Nebraska Public Power District is issuing $162.1 million general revenue bonds in two parts comprised of $107 million series C and $54.9 million series D. JP Morgan is the managing underwriter and the bonds earned ratings of A1 from Moody's, A from S&P and A-plus from Fitch.
- In what investors have called a "diversifier" deal Hawaii Department of Business, Economic Development and Tourism is issuing taxable green energy market securitization bonds. Green bonds have been booming in the municipal market recently, and investors are trying to get their hands on these environmentally sustainable products. In an interview with The Bond Buyer last week Marilyn Ceci, head of green bonds at JP Morgan predicted municipal green bonds will grow more than other bonds in 2015. The "x" factor about this deal is that the bonds are taxable, and while investors have been hungry for taxable issuance lately because they carry more yield, they have said they prefer purchasing taxable bonds in the secondary rather than the primary.
- The Connecticut Housing Finance Authority is also hopping on the taxable train with a $115 million deal consisting of $97 million tax-exempt and $18 million taxable housing mortgage finance program bonds that Citigroup is expected to price. The bonds are rated triple-A by Moody's and S&P.
- It's also community college mania today in California, with the state issuing $200 million to fund Cerritos Community College District. The most interesting aspect of this sale is that there are two different $100 million issues with one scheduled for pricing by RBC Capital Markets in a GO refunding sale with an $80 million tax-exempt and a $20 million taxable part. Wells Fargo Securities is expected to price the other section: $100 million GOs rated Aa2 by Moody's and AA by S&P.
- It's the second day of retail order for the tax-exempt $700 million New York City Transitional Finance Authority future tax secured subordinate bonds. There has been some debate in the market about whether the bonds came priced too aggressively on the short end during the first day of their retail, especially considering the market sold off on the strong ISM number. However, the last two deals the TFA did with a multimodal structure with a 10-year mandatory put did well. The market will have to wait and see if the deal team takes the sell-off into account and adjusts yields over the course of Tuesday trading. The bonds are rated Aa1 by Moody's and AAA by S&P and Fitch.
Scales
Municipal bonds were mixed on Tuesday morning, though only mildly so with the bulk of the curve selling off, according to Municipal Market Data's triple-A scale. Yields rose as much as one basis point on bonds maturing in four years, as much as two basis points for bonds maturing in six to 12 years, and up to one basis point for bonds maturing in 13 to 23 years.
The long end of the curve did strengthen with yields on bonds maturing in 28 to 30 years strengthening by up to one basis point.
What's strange about the sell-off is that Treasuries are mostly strengthening, and usually the two securities behave in lock-step. The two-year note did hold steady at 0.52% from Monday's close, but the 10-year yield dropped by two basis points to 2.34% and the 30-year also fell two basis points to 3.05%
