Municipal yields rise with Treasuries; market eyes $8.9 billion supply led by Chicago

By Sheri Kasprzak

New York, Jan. 11 – Municipals kicked off the week on a softer note, with yields rising as much as 3 basis points, traders reported.

Yields on top-rated municipals finished out the day flat to as much as 3 bps higher. Meanwhile, Treasuries closed lower, with the 30-year bond yield rising by 5 bps and the 10-year note yield up 4 bps.

Monday’s session was in stark contrast to last week, which saw a winning streak for the bond market. Municipals and Treasuries both enjoyed rallies fueled by weaker foreign and domestic stocks, sending investors in search of safe havens.

“That was certainly an interesting way to start 2016; a combination of volatility in equity markets, large amounts of cash waiting to be invested and limited supply helped push muni rates lower throughout the curve,” said Eric Kazatsky, municipal credit analyst with Janney Montgomery Scott LLC, in a note Monday morning.

“The 10-year MMA rate declined 7 bps to 1.88% while the 30-year declined 8 bps to 2.81% during the week. Municipal volume was slightly better than the 30-day average with total volume of 10.1 billion compared to $6.5 billion.”

Looking to the week ahead, supply seems to have rebounded following a holiday slump to $8.9 billion.

Chicago deal headlines

Chicago’s $500 million general obligation refunding bonds aren’t the largest offering of the week, but they might be the most controversial.

Market insiders have said recently they expect the deal to garner plenty of interest, especially since it will likely provide handsome yields.

But the city’s $20 billion unfunded pension liability leaves a bad taste in some investors’ mouths, leading some advisers to shun the deal.

Citigroup Global Markets Inc. leads the syndicate selling Chicago’s G.O.s. Final pricing is expected on Tuesday.

Health care bonds dominate

The sector with the most offerings on the slate this week is health care.

Trinity Health Credit Group is in the market Tuesday with the week’s biggest deal – a $568.05 million composite issue of revenue bonds (Aa3/AA-/AA) through BofA Merrill Lynch and Goldman Sachs & Co.

The deal will be offered in four tranches through authorities in Michigan, Connecticut, Idaho and Maryland.

The group plans to put its proceeds to work to construct, equip, improve and renovate Trinity facilities.

Coming up on Wednesday, the California Health Facilities Financing Authority will offer $500 million of revenue bonds for Sutter Health via Morgan Stanley & Co. LLC.

Those bonds will construct a new replacement hospital at Van Ness Avenue and Geary Boulevard in San Francisco, a new replacement hospital for St. Luke’s Hospital in San Francisco and a replacement hospital for Sutter Santa Rosa Regional Hospital.

Partners plans two

The Massachusetts Development Finance Agency is on tap to price $235,275,000 of revenue bonds on behalf of Partners Healthcare System, and the system itself is set to price $100 million of taxable bonds (Aa3/AA-/AA)

J.P. Morgan Securities LLC is the senior manager on both deals.

Also out of the sector this week, the Michigan Finance Authority is prepared to offer $300 million of revenue bonds for the Beaumont Health Credit Group.

Morgan Stanley is the lead manager.

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