June 4 Massachusetts slashed a planned $1.1 billion bond sale by nearly 40 percent on Tuesday as recent volatility in U.S. debt markets weakened investor demand for the deal, a state finance official said.
The state, which sold about $670 million of general obligation bonds in a three-part deal, will try to tap the market again soon to raise the rest of the money, said Colin MacNaught, the state's assistant treasurer for debt management.
"Given market conditions, there wasn't enough investor demand for the structure that we prefer and the price we prefer," MacNaught said.
The state could try again as soon as later this week, he said.
The $3.7 trillion muni bond market has fallen in step with recent weakness in U.S. Treasuries arising from investor worries the U.S. Federal Reserve may soon scale back its massive stimulus program.
Bond yields, which move in the opposite direction to prices, climbed during last week's sell-off after data showed strong consumer confidence and rising home prices. Treasury yields remain near their highest levels of the year.
Prices in the secondary market for munis fell on Tuesday, lifting yields by as many as 5 basis points in longer maturities, according to Municipal Market Data's triple-A benchmark scale.
The 10-year muni yield rose 2 basis points to close at 2.10 percent. The 30-year yield ended up 5 basis points at 3.29 percent, according to MMD, a unit of Thomson Reuters.
Ultimately, Massachusetts sold $470 million of refunding bonds instead of the $640 million originally planned, generating $40 million in savings for taxpayers, MacNaught said.
The state also sold about $100 million of 30-year new money GO bonds, rather than the $375 million it had planned.
That new paper had a 4 percent coupon and an 8-year call option, compared to a more common 5 percent coupon and 10-year call option. The structure saved taxpayers 25 basis points on a yield-to-maturity basis, MacNaught said.
Massachusetts also sold $100 million of its first-ever so-called Green Bonds, which will be used exclusively to finance clean water, open space, energy conservation and other environmental infrastructure projects. That portion of the deal did not shrink.
The Green Bonds, which are all in the 20-year maturity in a par structure with an 8-year call option, drew $130 million of orders and generated more than 150 orders from different individual investors. The bonds also lured as many as 9 new institutional investors that might not ordinarily have sought to buy Massachusetts GO bonds, according to MacNaught.
The Green Bond program aimed to diversify Massachusetts' investor base, improve market access and boost demand for the state's paper, he said.
Overall, the true interest cost on the deal was 3.02 percent, MacNaught said.