Top-quality municipal bonds ended mixed on Wednesday as the big Honolulu and Pennsylvania sales hit the screens.
Secondary market
The yield on the 10-year benchmark muni general obligation fell one basis point to 1.84% from 1.85% on Tuesday, while the 30-year GO yield was unchanged from 2.68%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries turned weaker on Wednesday. The yield on the two-year Treasury increased to 1.30% from 1.29% on Tuesday, the 10-year Treasury yield increased to 2.10% from 2.07% and the yield on the 30-year Treasury bond gained to 2.72% from 2.69%.
The 10-year muni-to-Treasury ratio was calculated at 87.4% on Wednesday, compared with 89.2% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 98.5% versus 99.6%, according to MMD.
MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 35,044 trades on Tuesday on volume of $7.95 billion.
Primary Market
Volume for the week is estimated at $3.86 billion, consisting of $3.03 billion of negotiated deals and $828.2 million of competitive sales.
On Wednesday, Bank of America Merrill Lynch priced the city and county of Honolulu’s $350 million of Series 2017H general obligation floating-rate bonds for the Honolulu rail transit project.
The floaters were priced to yield from 30 basis points over the SIFMA rate in 2022 to 32 basis points over the SIFMA rate in 2028.
The deal is rated Aa1 by Moody’s Investors Service and AA-plus by Fitch Ratings.
Since 2007, Honolulu has issued $7.08 billion of securities, with the most issuance taking place in 2015 when it sold $1.59 billion. It did not come to market in 2013 or 2014.
In the competitive arena on Wednesday, the Pennsylvania Higher Educational Facilities Authority sold $129 million of state system higher education refunding and refunding revenue bonds in three separate offerings later in the afternoon.
Morgan Stanley won the $77.51 million of Series AU-2 refunding revenue bonds with a true interest cost of 2.5547%.
Bank of America Merrill Lynch won the $36.18 million of Series AU-1 revenue bonds with a TIC of 2.8742%.
And JPMorgan Securities $15.11 million of Series AU-3 million taxable refunding revenue bonds with a TIC of 2.6260%.
The deals are rated Aa3 by Moody’s and AA-minus by Fitch.
On Thursday, Morgan Stanley is expected to price the week's largest deal — the New Jersey Economic Development Authority’s $595 million of motor vehicle surcharges subordinate revenue and taxable bonds.
The deal is rated Baa2 by Moody’s, but some of the bonds are expected to be insured by Build America Mutual.
Also on Thursday, Goldman Sachs is on the docket to price the Regents of the
The deal is rated triple-A by Moody’s, S&P Global Ratings, and Fitch, and it is anticipated to come as a bullet maturity in 2047.
Ramirez looks at rates, tax reform
Fed Funds futures are implying a less than a 35% probability of another rate hike in September, November or December, according to Ramirez & Co.’s weekly municipal strategy report, which added that forward Treasury rates imply a flattening of the Treasury yield curve.
“Given these metrics, one could conclude that the market believes inflation will remain low and rates will remain range-bound. In fact, the market is rallying today on safe-haven demand,” the report said. “However, the market calculus could change should the Fed, as expected, commence balance sheet normalization this month.”
The report said a caveat is the continued strong municipal bond fund inflows and relatively low supply, although fund flows are somewhat dependent on munis remaining attractive compared to Treasuries and corporates.
“As far as tax reform goes, we expect some form of a tax deal to get done in some shape or form this year, but probably a watered-down Trumpian version, with slightly lower brackets and/or increased deductions that will not adversely impact the attractiveness of munis,” the report said.
