The Bond Buyer - - Front Page - By Chip Bar­nett & aaron Weitz­man

Yields on top-rated mu­nic­i­pal bonds rose as much as 10 ba­sis points as Trea­sury bonds weak­ened on re­ports that China may halt its buy­ing of U.S. gov­ern­ment debt.

In the pri­mary mar­ket, Mor­gan Stan­ley priced a big tax­able deal in the ne­go­ti­ated sec­tor and won a large note sale in the com­pet­i­tive arena.

The MBIS mu­nic­i­pal non-callable 5% GO bench­mark scale was weaker in late trad­ing.

The 10-year muni bench­mark yield rose to 2.331% on Wed­nes­day from the fi­nal read of 2.278% on Tues­day, ac­cord­ing to Mu­nic­i­pal Bond In­for­ma­tion Ser­vices. The MBIS 30-year bench­mark muni yield gained to 2.835% from 2.780%.

Top-rated mu­nic­i­pal bonds fin­ished sub­stan­tially weaker on Wed­nes­day. The yield on the 10-year bench­mark muni gen­eral obli­ga­tion rose seven ba­sis points to 2.12% from 2.05% on Tues­day, while the 30-year GO yield gained eight ba­sis points to 2.72% from

2.64%, ac­cord­ing to the fi­nal read of

MMD’s triple-A scale. Some in­ter­me­di­ate ma­tu­ri­ties were from seven to 10 ba­sis points higher.

“The muni mar­ket was off­sides and needed to ad­just,” said one New York trader in ref­er­ence to the big jump in yields.

U.S. Trea­suries were weaker in late ac­tiv­ity as yields rose for a fifth straight ses­sion after re­ports sur­faced that Chi­nese of­fi­cials were re­view­ing the na­tion’s for­eign-ex­change hold­ings and may slow or halt fu­ture pur­chases of Trea­sury se­cu­ri­ties.

The yield on the two-year Trea­sury gained to 1.97% on Wed­nes­day from 1.96% on Tues­day, the 10-year Trea­sury yield rose to 2.56% from 2.55% and the yield on the 30year Trea­sury in­creased to 2.89% from 2.88%.

The 10-year muni-to-Trea­sury ra­tio was cal­cu­lated at 83.2% com­pared with 80.5% on Tues­day, while the 30-year muni-to-Trea­sury ra­tio stood at 94.0% ver­sus 91.5%, ac­cord­ing to MMD.

The trader also said the muni mar­ket sup­ply/de­mand equa­tion still fa­vors a for­ward net neg­a­tive sup­ply sce­nario and as a re­sult there are and will still be buy­ers.

“The mar­ket just needs to re­bal­ance and re­dis­tribute risk be­fore they chase the of­fered side again,” he said. “In the mean­time the buy­ers will con­tinue to be content buy­ing on the bid­side. Spreads will, and should, con­tinue to widen as the mar­ket ad­justs. Lastly, the sell­ers will not be stick­ing the pro­ceeds of their sales un­der the mat­tress. The money will be rein­vested. One likely rein­vest­ment ve­hi­cle will be tax­able mu­nis. The back off in ab­so­lute trea­sury rates com­bined with still rich muni ra­tios have left tax­able mu­nis cheaper on a rel­a­tive value ba­sis.”

Mor­gan Stan­ley priced Stan­ford Health Care, Calif.’s $500 mil­lion of Se­ries 2018 cor­po­rate CUSIP tax­able bonds.

The tax­ables were priced at par with a 3.795% coupon (about 90 ba­sis points above the com­pa­ra­ble Trea­sury 30-year se­cu­rity) and are due on Nov. 15, 2048, with a first in­ter­est pay­ment on May 15.

Pro­ceeds of the sale will be used for gen­eral cor­po­rate pur­poses.

The deal is rated Aa3 by Moody’s In­vestors Ser­vice, AA-mi­nus by S&P Global Rat­ings and AA by Fitch Rat­ings.

In the com­pet­i­tive bond arena on Wed­nes­day, Worcester, Mass., sold $103.795 mil­lion of GOs in two sep­a­rate sales.

Mor­gan Stan­ley won the $75.195 mil­lion of mu­nic­i­pal pur­pose loan of 2018 Se­ries A GOs with a true in­ter­est cost of 2.8991% while Ray­mond James won the $28.6 mil­lion of tax­able Se­ries B GOs with a TIC of 3.7379%.

Since 2008, Worcester has sold about $963 mil­lion of bonds, with the most is­suance oc­cur­ring in 2016 when it sold $170 mil­lion. The city saw a low year in 2009 when it sold $40.4 mil­lion. ◽

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