Ten-year tax-exempt bonds climb another 20 bps; St. Joseph Health pulls $763.67 million deal

By Sheri Kasprzak

New York, June 21 - Municipals continued to weaken on Friday, with 10-year tax-exempt bonds climbing another 20 basis points to 2.68%. The 10-year yield also climbed 20 bps on Thursday.

According to Alan Schankel, managing director with Janney Montgomery Scott LLC, Thursday's climb was the sharpest one-day rise since the days following Lehman Brothers' bankruptcy in 2008.

"In 2008, munis were zigging while Treasuries were zagging as the flight to quality pushed Treasury yields lower and most other fixed-income yields higher," Schankel said.

"In this two-month iteration of a yield rally (tongue firmly in cheek), tax-free yields have not de-coupled from their Treasury counterparts, as all yield boats have risen in unison, although volatility has buffered intraday muni-to-Treasury ratios quite a bit."

Sell-off pushes yields up

A trader reached late Friday said municipals got hit by another session riddled with selling pressure. Bid-wanteds, said the market source, reached about $450 million around midday.

"We're dealing with a severely volatile market right now, and we're really sensitive to headlines," he said.

"The instability is hitting us hard, and in this case, we're plummeting right along with Treasuries."

Deals pulled off table

The weakness in the markets forced some major offerings off the calendar during the week.

The California Health Facilities Financing Authority postponed its $763.67 million offering of revenue bonds for St. Joseph Health System.

The bonds (A1/AA-/AA-) had been slated to price Tuesday, but the pricing date has not been rescheduled. Morgan Stanley & Co. LLC was the senior manager, and proceeds from the deal, when it is conducted, will be used to construct, equip, acquire, renovate and remodel the Hoag Hospital Newport Beach, St. Joseph Hospital, St. Jude Medical Center, St. Mary Medical Center and Santa Rosa Memorial Hospital.

Also postponed was a $350 million offering of transportation revenue bonds from New York's Metropolitan Transportation Authority.

Those bonds will be offered through RBC Capital Markets LLC and M.R. Beal & Co.

Proceeds, when the deal is completed, will be used to refinance commercial paper initially issued to finance commuter and transit projects.

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