Municipals end mixed, outperform Treasuries; November new-issue volume nears $30 billion

By Sheri Kasprzak

New York, Nov. 19 – Municipals were somewhat mixed to close the session but still outperformed a weaker Treasuries market, traders said Wednesday.

The primary market continued to dominate action during the session, leaving secondary very light, said a trader during the afternoon.

Yields around the middle of the curve were seen about 2 basis points higher while the rest of the yield curve remained mostly unchanged, the trader said.

Meanwhile, the November is shaping up to be a strong one for new issues, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

Supply remains solid

November is approaching the $30 billion mark for new deals, ahead of the $23 billion pace of November 2013.

“Demand remains solid, with municipal mutual funds continuing a long run of weekly inflows, but the supply of new bonds is causing some softness as evidenced by rising muni-to-Treasury ratios, which are approaching the 2014 highs reached in January and February,” Schankel wrote in a note Wednesday.

“The 30-year MMD benchmark yield of 3.10% is 102% of yesterday’s [Tuesday’s] 3.04% Treasury finish, while in 10-year maturities, the 95% M/T ratio has risen from the 85% level of a month ago.

“Our outlook for the new issue supply includes a drop off in coming months and years, especially for the new-money component, so with few signs of receding demand given the highest tax rates since 1986 and the demonstrated value of the tax exemption when comparing municipal bond yields to taxable alternatives, elevated ratios may represent an opportune entry point for tax-free investors.”

DART downsizes offering

Moving to Wednesday’s primary action, Dallas Area Rapid Transit came to market with $377.77 million of series 2014A senior lien sales tax revenue refunding bonds, with the offering downsized from $402,305,000.

The bonds (Aa2/AA+/) were sold through senior manager J.P. Morgan Securities LLC.

The bonds are due 2017 to 2036 with 2% to 5% coupons, according to a term sheet.

Proceeds will be used to refund a portion of the authority’s series 2007 revenue refunding bonds and its series 2008 revenue bonds.

Erlanger bonds trade higher

Elsewhere, the Chattanooga-Hamilton County Hospital Authority of Tennessee priced $149.92 million of series 2014A hospital revenue and refunding bonds for the Erlanger Health System. Later in the session, the bonds were seen trading higher.

The bonds (Baa2//BBB) were sold through senior managers Barclays and FTN Financial Capital Markets.

The bonds are due 2018 to 2034 with term bonds due in 2039 and 2044. The serial coupons range from 3% to 5% with 1.73% to 4.08% yields. The 2039 bonds have a 4.125% coupon priced at 96.453 to yield 4.36% and a 5% coupon priced at 106.369 to yield 4.2%. The 2044 bonds have a 5% coupon priced at 105.628 to yield 4.29%.

In secondary trading, the 4.125% 2039s were seen trading at 4.124% after pricing at 4.36%.

Proceeds will be used to finance the acquisition and construction of hospital facilities, as well as to refund the system’s series 1997A, 1998A, 2000 and 2004 revenue bonds.

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