Municipals strengthen as market awaits $9 billion of new supply; Florida hurricane bonds ahead

By Sheri Kasprzak

New York, Feb. 8 – The municipals market closed Monday stronger as about $9 billion of new issues are slated to price, market sources reported.

Yields on top-rated municipals were lower by as much as 4 basis points, traders said. The triple-A 10-year bond yield fell by 2 bps to 1.74%, and the 30-year bond yield dropped 4 bps to 2.72%.

The market greatly underperformed Treasuries, which rallied as oil prices and stocks dropped. This underperformance is a continuation of a recent trend, according to Eric Kazatsky, municipal credit analyst with Janney Montgomery Scott LLC.

“To date, rates on the 10- and 30-year MMA benchmarks have fallen 19 bps and 13 bps, respectively, compared to a decline of 40 bps and 30 bps in the corresponding Treasuries,” Kazatsky said in a note Monday morning.

On Monday, the 30-year Treasury bond yield fell by 12 bps to 2.56%, and the 10-year benchmark note yield ended 11 bps lower at 1.75%. The five-year note yield shrank by 9 bps to 1.16%, and the two-year yield closed 8 bps lower at 0.66%.

West Texas Intermediate crude oil fell by 3.9% on Monday to $29.69 per barrel.

Meanwhile, the Dow Jones industrial average fell by 177.92 points to 16,027.05 and the Nasdaq sank 79.32 points to 4,283.75. The S&P 500 slipped 26.61 points to 1,853.44.

$9 billion supply set

The week’s $9 billion of new issues will be led by a few big deals, including a $1.2 billion offering from the Florida State Board of Administration Finance Corp. for the Florida Hurricane Catastrophe Fund.

The offering (Aa3/AA/AA) is being sold through a syndicate led by J.P. Morgan Securities LLC, and the proceeds will provide cash to the fund for insurance claims and to refund existing bonds.

NYC Transitional ahead

Tuesday will feature a $1 billion deal from the New York City Transitional Finance Authority.

The authority will offer future tax secured subordinate bonds (Aa1/AAA/AAA) via senior managers Barclays, Loop Capital Markets LLC, BofA Merrill Lynch, Goldman Sachs & Co., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The offering includes $750 million of series 2016E-1 tax-exempt bonds due 2018 to 2042, $195.42 million of series 2016E-2 taxable bonds due 2018 to 2028 and $54.58 million of series 2016E-3 taxable bonds due 2018 to 2028.

Proceeds will finance general capital expenditures for the city.

Houston to offer debt

In other significant deals, Houston is on tap to price $800 million of utility bonds (Aa2//AA) via Wells Fargo Securities LLC.

Pricing is scheduled for Tuesday.

Proceeds will be used to help pay the costs to construct, improve or repair the water and sewer system; refund all or a portion of outstanding series B combined utility system commercial paper notes and refund a portion of outstanding combined utility system first-lien revenue bonds.

Washington G.O. bonds planned

Tuesday’s competitive slate includes a $522,105,000 offering of general obligation bonds (Aa1/AA+/AA+) from Washington state.

The deal includes $321.58 million of series 2016C various purpose G.O. bonds due 2017 to 2041 and $200,525,000 of series 2016D motor vehicle fuel tax G.O. bonds due 2017 to 2041.

Proceeds will be used to finance K-12 school renewal and replacement projects, facilities for state universities and community and technical colleges, state facilities projects, outdoor recreation facilities, state water supply development, flood mitigation and prevention, habitat conservation and farmland and riparian protection projects, as well as to fund high-occupancy vehicle projects in Pierce County, widen Interstate 405, improve Interstate 90 at the Snoqualmie Pass East, improve and realign the North Spokane Corridor of U.S. 395 and improve Interstate 5 in Cowlitz and Lewis counties.

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