Low Issuance Trend Continues with $5.9B Week

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Demand is still running rampant in the municipal bond primary market, while the pipeline of new supply remains crimped.

Ipreo estimates volume will increase to $5.96 billion, from a revised total of $4.41 billion in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $4.53 billion of negotiated deals and $1.43 billion of competitive sales. There are 12 scheduled sales larger than $100 million.

"There is very strong demand in many respects for a wide variety of paper, from investment grade to high yield and anything in-between," said Jim Colby, senior municipal strategist at Van Eck Global. "The market seems to be in a pretty good spot."

Colby said that the market has done well performance wise, which is surprising considering that March is typically poor month for performance. The biggest surprise is the lack of volume. According to Municipal Market Data, the weekly 2017 average is only $6 billion. The market has seen weekly volume of less than $7 billion for three weeks in a row and six of the past seven.

"I think a lot of people thought volume would pick up this month and for some reason that has not been the case," he said. "I would like to see more supply, as would everyone else I'm sure."

Citi is scheduled to price the largest deal of the week – the State of Connecticut's $750 million of general obligation bonds. The sale is expected to be separated into $550 million of Series A bonds and $200 million of Series B refunding bonds. The deal is set to sell on Tuesday after a one day retail order period on Monday and is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.

Connecticut has continued to see its budget fray, as budget imbalances caused three bond rating downgrades last year alone. Moody's and S&P have the state in negative outlook, while Fitch and KBRA have assigned stable outlooks.

Citi is also slated to price the city of San Jose, Calif.'s $641 million of airport revenue refunding bonds on Tuesday following a one day retail order period. The deal is rated A2 by Moody's and A-minus by S&P and Fitch.

S&P recently revised its outlook on the airport to positive from stable. The bonds are limited obligations of the city, secured by the revenues generated at Norman Y. Mineta San Jose International Airport. They carry ratings of A2 from Moody's Investors Service and A-minus from S&P Global Markets and Fitch Ratings. The deal is scheduled to include a $486.5 million series of bonds with interest subject to the alternative minimum tax, with a second series comprising the remainder of the bonds being non-AMT tax-exempt securities. The bond proceeds will refund all of the 2007 bonds issued for terminal improvements at the airport.

Jefferies is scheduled to price the Golden State Tobacco Securitization Corp.'s $618.805 million on Thursday.

"I think both the tobacco and the CT deal will do well," Colby said. "They will come at adjusted levels but it will also help that there aren't many new issues that they will be competing with."

Given the dearth of high yield issuance, investors should be all over the deal as a way to pick up yield that is more attractive that other issues offer, Colby said.

Secondary Market

Top-shelf municipal bonds ended unchanged on Friday. The yield on the 10-year benchmark muni general obligation was steady from 2.28% on Thursday, while the 30-year GO yield was unchanged from 3.07%, according to the final read of Municipal Market Data's triple-A scale.

On the week, muni yields were over 10 basis points lower. On March 17, the 10-year yield stood at 2.40% while the 30-year yield was at 3.18%.

U.S. Treasuries were little changed on Friday. The yield on the two-year was unchanged from 1.25% on Thursday, while the 10-year Treasury yield was steady from 2.41%, and the yield on the 30-year Treasury bond declined to 3.01% from 3.02%.

The 10-year muni to Treasury ratio was calculated at 95.3% on Friday compared with 94.4% on Thursday, while the 30-year muni to Treasury ratio stood at 102.4%, versus 101.4%, according to MMD.

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended March 24 were from Massachusetts, New York and Puerto Rico, according to Markit.

In the GO bond sector, the Massachusetts 2s of 2017 were traded 23 times. In the revenue bond sector, the New York Metropolitan Transportation Authority 5s of 2017 were traded 48 times. And in the taxable bond sector, the Puerto Rico Public Buildings Authority 5.65s of 2028 were traded 20 times.

Week's Most Actively Quoted Issues

Puerto Rico, West Virginia and California names were among the most actively quoted bonds in the week ended March 24, according to Markit.

On the bid side, the Puerto Rico Public Buildings Authority revenue 5.25s of 2042 were quoted by 52 unique dealers. On the ask side, the West Virginia Hospital Finance Authority revenue 4.25s of 2047 were quoted by 197 unique dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 24 unique dealers.

Lipper: Muni Bond Funds Report Inflows

Investors in municipal bond funds made an about-face and put cash back in the funds in the latest week, according to Lipper data released late Thursday.

The weekly reporters saw $173.473 million of inflows in the week ended March 22, after outflows of $118.061 million in the previous week.

The four-week moving average remained in the red at negative $90.990 million, after being at negative $97.024 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds also had inflows, gaining $251.521 million in the latest week after falling $126.198 million in the previous week. Intermediate-term funds had outflows of $18.088 million after inflows of $64.843 million in the prior week.

National funds had inflows of $196.828 million after outflows of $12.954 million in the previous week. High-yield muni funds reported inflows of $222.906 million in the latest reporting week, after inflows of $65.995 million the previous week.

Exchange traded funds saw inflows of $118.730 million, after inflows of $31.051 million in the previous week.

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