Munis hold steady with about $9 billion in new deals ahead; green bonds see growth

By Sheri Kasprzak

New York, Sept. 19 – Municipals were little changed on the session with some spotty firmness reported, traders said during the afternoon.

Yields were mostly flat, said a trader, as the market largely ignored rallying Treasuries, especially a 7 basis point drop for the 30-year bond. The 30-year bond closed at 3.29%. The 10-year benchmark Treasury note yield fell by 4 bps at 2.59%. The five-year note yield fell by 2 bps to 1.83%.

Looking to the coming week, about $9 billion in new offerings are on the calendar, marking a significant jump in supply over recent weeks. Massachusetts is on tap to bring $1.2 billion of short-term debt on Wednesday.

Green bonds expand

The market for green bonds is growing, according to Tyler Cling, senior manager of fixed income indices with S&P Dow Jones Indices.

“Annual issuance has grown from over $11 billion in 2013 to an expected $40 billion in 2014, bringing the global market to over $500 billion,” Cling wrote Friday.

“Since 2007, the market for environmentally focused credit has grown at over a 50% annualized rate. Yields continue to fall since February 2011 as ESG investors clamor to socially responsible investing in concert with the low yield environment.”

The S&P Green Bond Index tracks 163 bonds valued at over $40.7 billion.

Green bonds, however, underperform U.S. investment grade munis and their corporate counterparts.

The S&P U.S. Issued Investment Grade Corporate Bond Index had a 6.26% annualized five-year return compared to a 3.47% return from the S&P Green Bond Index and the S&P Municipal Bond Investment Grade Index returned 4.76% annually over a five-year horizon and -1.72% month-to-date while the S&P green Bond Index returned -1.74% month-to-date.

Mass. brings green bonds

Green bonds have been particularly popular in Massachusetts. The commonwealth hit the market on Thursday with $350 million of series 2014E consolidated loan green G.O. bonds through Morgan Stanley & Co. LLC, BofA Merrill Lynch, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

The serial bonds are due 2019 to 2031 with coupons from 2% to 5%.

In secondary action Friday, the bonds were trading very actively. The 2% 2021s were trading between 1.83% and 1.868%, ending the day at 1.83%, unchanged from pricing. The 2% 2022s traded between 2.055% and 2.124%, ending the day at 2.09%, also unchanged from pricing.

Proceeds will be used to finance approved capital projects within the commonwealth.

MIT bonds are green

Also out of Massachusetts, the Massachusetts Institute of Technology’s planned $522 million series 2014D taxable bonds contains a green bond component.

The deal includes $152 million of series 2014D-1 bonds and $370 million of series 2014D-2 green bonds.

The bonds (Aaa/AAA/) will be sold on a negotiated basis with J.P. Morgan Securities LLC, Barclays and Morgan Stanley & Co. LLC as the senior managers.

The 2014D-1 bonds are due in 2019 and 2026 and the 2014D-2 bonds are due in 2038.

Proceeds will be used to advance refund the institute’s series 2008O taxable bonds.

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