Muni yields jump as new deals bring pressure; Trinity Health brings $648.66 million of bonds

By Sheri Kasprzak

New York, Oct. 5 - Municipal yields took a major hit on Wednesday as new offerings dominated the market, said traders. Even though there was plenty of supply - enough to shove yields up as much as 15 basis points in spots - investors were less than enthusiastic about the offerings.

Yields on five-year bonds were up more than 15 bps, and yields on 15-year bonds were up more than 11 bps. Seven-, 10- and 30-year yields were all up 10 bps, and 20-year bonds were up 7 bps.

"Yields are definitely under supply pressure today. There's a couple of things happening. We've got a huge supply of new deals, but investors are just not biting," said one trader.

Yields, the trader noted, are still too low for retail investors to show an interest in the market.

Meanwhile, municipal-to-Treasury ratios have been rising in recent weeks, and this could mean opportunity for the savvy investor, said Alan Schankel, managing director with Janney Montgomery Scott LLC.

Schankel said in a report recently that in 10-year bonds, an AAA-rated muni yield is 127% of the yield offered by Treasuries. The ratio in 30 years is 130%.

Switch to tax-free

"We see several reasons for this elevation," Schankel wrote in a report Wednesday.

"After a slow start to the year, the new issue pace is accelerating. The number of new money loans is moderate, but low interest rates have increased the number of refunding deals, which accounted for about 50% of September's calendar. Municipal mutual fund flows have been positive since the end of August but are still modest compared to last year's same-time-period pace."

Schankel said Wednesday that the causes of the elevated ratios are cyclical and temporary.

"Ratios may not recede to historic norms in the near future, but they will move lower in coming weeks and months as we get past the refunding-generated supply bump and learn more about the outcome of the jobs legislation," Schankel noted.

"When yields for high-quality municipal bonds have significantly exceeded those of taxable alternatives in the past, as they do today, history has smiled on investors."

In this current environment, Schankel said he recommends that investors switch some fixed-income assets to tax-free from taxable.

"In coming months, AAA-rated municipal bonds will likely significantly outperform Treasury issues, irrespective of interest rate changes," Schankel said.

Trinity brings bonds

Heading up the massive primary slate for Wednesday, the Trinity Health Credit Group priced $648.66 million of series 2011 composite issue revenue and revenue refunding bonds, said a pricing sheet.

The offering was comprised of $106.3 million of series 2011CA revenue and refunding bonds sold through the California Statewide Communities Development Authority; $14.485 million of series 2011OH revenue bonds sold through Franklin County, Ohio; $139.71 million of series 2011IL revenue bonds sold through the Illinois Finance Authority; $325.195 million of series 2011MI hospital revenue and refunding bonds issued through the Michigan Finance Authority; and $62.97 million of series 2011MD revenue and refunding bonds offered through Montgomery County, Md.

The bonds (Aa2/AA/AA) were sold through senior managers Goldman Sachs & Co. and Bank of America Merrill Lynch.

Proceeds will be used to advance or current refund existing debt and pay for capital improvements to some of the hospital facilities operated by Trinity.

Oklahoma Turnpike prices deal

Also during the session, the Oklahoma Turnpike Authority priced $524.01 million of series 2011A Oklahoma turnpike system refunding second senior revenue bonds, said a pricing sheet.

The bonds (Aa3/AA-/AA-) were sold through senior manager RBC Capital Markets LLC.

The bonds are due 2012 to 2028 with 0.2% to 5% coupons.

Proceeds will be used to refund the authority's series 2006C, 2006E and 2006F revenue bonds.

Virginia PBA sells debt

Elsewhere, the Virginia Public Building Authority came to market with $298.5 million of series 2011 public facilities revenue bonds, said a pricing sheet.

The bonds were sold competitively with Bank of America Merrill Lynch winning the bid.

The sale included $280 million of series 2011A bonds and $18.5 million of series 2011B taxable bonds.

The 2011B bonds are due 2012 to 2027 with term bonds due in 2029 and 2031. The serial coupons range from 2% to 3.75%. The 2029 bonds have a 4.125% coupon and priced at 99.558, and the 2031 bonds have a 4.25% coupon and priced at 99.201.

Proceeds will be used to fund capital projects.

Mississippi sells taxable G.O.s

In other pricing news, the State of Mississippi brought $261.3 million of series 2011C taxable general obligation bonds, said a pricing sheet.

The bonds were sold through Bank of America Merrill Lynch and Morgan Stanley & Co. LLC.

The bonds are due 2016 to 2023 with a term bond due in 2027. The serial coupons range from 1.799% to 3.543%, all priced at par. The 2027 bonds have a 4.053% coupon and priced at par.

Proceeds will be used to fund loans to existing industries and economic development entities to purchase new technologies, land and buildings to improve competitiveness and productivity.

Catholic Health preps deal

In upcoming offerings, the Catholic Health Initiatives is set to sell $410.885 million of series 2011 revenue bonds through the Colorado Health Facilities Authority and the Washington Health Care Facilities Authority, said a preliminary official statement. Pricing is expected during the week of Oct. 10.

The Colorado offering includes $308.84 million of series 2011A bonds, and the Washington deal includes $102.045 million of series 2011A revenue bonds.

The bonds (Aa2/AA/AA) will be sold on a negotiated basis with J.P. Morgan Securities LLC and Morgan Stanley as the lead managers.

Proceeds will be used to construct, renovate and acquire facilities operated by Catholic Health.

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