Municipal yields were steady to stronger on the long end Tuesday as Colorado sold notes and Seattle offered bonds, but those long-dated, smaller-coupon bonds are enticing investors.
A Dallas, Texas, ISD bond, 4s of 2049, traded in large blocks at 1.72%, just about 30 basis points lower than AAA benchmark scales. A four-handle at 1.72%. On a nearly 30-year bond.
“Yields have reached epic lows in this market given the current climate and traders are mostly stranded. It’s no longer a ‘holding pattern,’ but rather it is a place in which we just don’t know where to go and when the gas will run out,” a Chicago trader said.
Credit quality is a concern and traders have been flocking more toward those high-grade names.
Loudoun County, Virginia, 5s of 2026, traded at 0.41%. Delaware GOs, 5s of 2028, were at 0.55%-0.54%.
Texas, again. Dallas ISD 5s of 2029, at 0.73% (original 0.79%.)
Prince George’s County, 5s of 2031, at 0.83%-0.81%. Early June, they were at 1.12%.
Montgomery County, Maryland, 3s of 2033, landed at 1.22%-1.20%. Originally, 1.30%.
And the primary continues to push levels in the direction that issuers and investors want to see.
In the competitive arena, Colorado began the first of its $1 billion offering of tax and revenue anticipation notes.
On Tuesday, the state sold $410 million of Series 2020A education loan program TRANs.
Six groups won the TRANS:
- Bank of New York Mellon won $100 million with a bid of 3%, a premium of $2,519,610, an effective rate of 0.203830%;
- JPMorgan Securities won $100 million with a bid of 4%, a premium of $3,420,000, an effective rate of 0.204610%;
- Morgan Stanley won $100 million with a bid of 3%, a premium of $2,519,000, an effective rate of 0.204490%;
- Citigroup won $50 million with a bid of 4%, a premium of $1,710,500, an effective rate of 0.203540%;
- Wells Fargo Securities won 35 million with a bid of 4%, a premium of $1.197,000, an effective rate of 0.204610%; and
- UBS Financial Services won $25 million with a bid of 4%, a premium of $855,000, an effective rate of 0.246100%.
RBC Capital Markets was the financial advisor and Kutak Rock was the bond counsel.
On Tuesday, Moody’s Investors Service issued a report on the state of Colorado. (Aa1/stable outlook). It said the state began its new fiscal year by excluding a $225 million supplemental pension contribution to the state Public Employees’ Retirement System.
“The pension contribution pullback is credit negative for Colorado and its local school districts, because it will simply defer the pension costs to later years and allow the associated unfunded liability to grow at a compounding rate of 7.25% (PERA’s assumed rate of investment return and discount rate for calculating its liability),” said Tom Aaron, vice president at Moody’s.
“Colorado’s budget quandary also highlights the financial exposure of state governments to underfunded teacher pension systems generally, even where the obligations are not directly accounted for on the state balance sheet, due to their broad control over and support for K-12 education,” he said.
The state will be in the market again on Thursday when it will sell $600 million of Series 2020 general fund TRANs. Stifel is the financial advisor and Sherman & Howard is the bond counsel.
Seattle, Wash., (Aa2/AA/NR/NR) competitively sold $202.875 million of Series 2020A municipal light and power improvement revenue bonds.
The issue was designated as green bonds and verified by Kestral.
Wells Fargo Securities won the bonds with a true interest cost of 2.1067%.
The bonds were priced to yield from 0.14% with a 5% coupon in 2021 to 1.78% with a 4% coupon in 2050.
Piper Sandler was the financial advisor; Stradling Yocca was the bond counsel.
Since 2010, the city has sold about $7 billion of bonds, with the most issuance occurring in 2020 when it sold $1.2 billion of debt.
Goldman Sachs priced Colorado Springs, Colo.’s (Aa2/AA+/NR/NR) $338.365 million of utilities system refunding revenue bonds and utilities system improvement revenue bonds.
The Series 2020A utilities system refunding revenue bonds were priced to yield from 0.13% with a 5% coupon in 2020 to 1.68% with a 4% coupon in 2040; a 2045 maturity was priced to yield 1.83% with a 4% coupon and a 2050 maturity was priced to yield 1.88% with a 4% coupon.
The Series 2020B Private Activity/Non-AMT utilities system refunding revenue bonds were priced to yield from 0.13% with a 5% coupon in 2020 to 0.75% with a 5% coupon in 2028.
The Series 2020C utilities system improvement revenue bonds were priced to yield from 0.13% with a 5% coupon in 2020 to 1.48% with a 5% coupon in 2040; a 2045 maturity was priced to yield 1.63% with a 5% coupon and a 2050 maturity was priced to yield 1.68% with a 5% coupon.
Barclays Capital priced the New Jersey Housing and Mortgage Finance Agency’s (Aa2/AA/NR/NR) $365.005 million of tax-exempt and taxable revenue bonds for retail investors.
The Series 2020E non-AMT single-family housing revenue bonds were priced for retail at par to yield 2.10% in 2035, 2.30% in 2040, 2.45% in 2045, 2.50% in 2050 and 3.50 for a 2051 PAC bond.
The Series 2020F single-family housing revenue bonds, subject to the AMT, were priced at par to yield from 0.55% in 2021 to 1.90% in 2028.
The Series 2020G taxable single-family housing revenue bonds were priced to yield from 60 and 70 basis points over the comparable U.S. Treasury security in a split 2021 maturity to 125 and 1340 basis points over the comparable Treasury in a split 2026 maturity.
RBC priced the Connecticut Housing Finance Authority’s (Aaa/AAA/NR/NR) $118.795 million of housing mortgage finance program bonds.
The Subseries C-1 bonds were priced at par to yield from 0.25% in 2021 to 1.90% in 2032, 2% in 2035, and 2.10% in 2037.
The Subseries C-2 subject to the AMT were priced to yield from 0.30% and 0.35% with 5% coupons to 2.20% and 2.25% at par in a split 2031 maturity; a 2034 maturity was priced at par to yield 2.30%.
On Wednesday, Morgan Stanley is set to price the California Department of Water Resources’ (Aa1/AAA/NR/NR) $1.097 billion of tax-exempt and taxable water system revenue bonds.
On Thursday, Morgan Stanley is set to price the cities of Dallas and Fort Worth, Texas’ (A1/A/A+/AA) $1.139 billion of Series 2020C taxable joint revenue refunding bonds for Dallas Fort Worth International Airport on Thursday.
Municipals were steady on the short end Tuesday, according to readings on Refinitiv MMD’s AAA benchmark scale.
MMD reported yields on the 2021 and 2023 GO munis were unchanged at 0.13% and 0.15%, respectively. The yield on the 10-year GO muni fell one basis point to 0.70% while the 30-year yield dipped one basis point to 1.42%.
The 10-year muni-to-Treasury ratio was calculated at 120.5% while the 30-year muni-to-Treasury ratio stood at 116.2%, according to MMD.
“Muni are generally better today,” ICE Data Services said Tuesday. “Trade volumes are seeing a slight uptick from yesterday.”
The ICE AAA municipal yield curve showed short yields flat at 0.120% in 2021 and 0.128% in 2022. The 10-year maturity was down one basis point to 0.675% and the 30-year dropped one basis point to 1.441%.
ICE reported the 10-year muni-to-Treasury ratio stood at 125% while the 30-year ratio was at 115%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.13% and the 2022 maturity at 0.16% while the 10-year muni was at 0.70% and the 30-year stood at 1.43%.
The BVAL AAA curve showed the 2021 maturity yielding 0.10% and the 2022 maturity at 0.13% while the 10-year muni was at 0.68% and the 30-year stood at 1.44%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were weaker as stock prices traded down.
The three-month Treasury note was yielding 0.108%, the 10-year Treasury was yielding 0.583% and the 30-year Treasury was yielding 1.222%.
The Dow fell 0.36%, the S&P 500 decreased 0.23% and the Nasdaq lost 0.82%.