Munis finished unchanged to stronger on Friday, according to traders, breaking a string of sessions in which yields had surged. Market participants are hoping this is a sign of things to come, with nearly $10 billion of issuance planned in the coming week.
Primary Market
Volume for the week ending Dec. 9 is forecast by Ipreo to climb to $9.98 billion, from a revised total of $8.57 million in the previous week, according data from Thomson Reuters. The calendar is comprised of $7.42 billion of negotiated deals and $2.56 billion of competitive sales.
The market has been volatile since the election, with spikes of 22 basis points on Nov. 14 and 10 basis points on Nov. 30. Jim Colby, senior municipal strategist at Van Eck Global, believes that the market will settle and find some footing, as he said factual evidence supports a return to optimism for the muni asset class.
"I do believe that yields have topped out for the near term," he said. "Why? The technical of demand far outweighing supply for December is compelling. We saw yields on the AAA Municipal Market Data rise 70 bps or more at each point on the curve during the month of November, which has created better entry points for buyers than in more than a year."
The ratios of MMD’s AAA munis to Treasuries have soared above 100% from 10 through 30 years, he said, signaling an opportunity for both traditional and non-traditional buyers.
"Supply is forecast to be below $10 billion for the month, which is very manageable compared to October and November," he said. "The technicals for December as well as the `January' effect might well generate positive returns for the month."
The upcoming slate has some big name issuers, along with a northeastern feel. New York City sits atop the calendar, with a total of $1 billion of bonds planned, separated into one negotiated deal and two competitive taxable deals.
Jefferies is expected to run the books on the New York's $802million of fiscal 2017 subseries B-1, fiscal 2008 subseries J-7 and fiscal 2008 subseries J-9 on Wednesday, following a two-day retail order period. The deal is rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.
The competitive deals will also sell on Wednesday, as the taxable general obligation bonds will be parceled out into deals of $49.44 million and $150.56 million.
Pennsylvania is scheduled to competitively sell $613 million of GO refunding bonds, second series on Wednesday. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
JPMorgan is expected to price the New York City Housing Development Corp.'s $542.91 million of multi-family housing revenue sustainable neighborhood bonds on Thursday, following a one day retail order period. The deal is rated Aa2 by Moody's and AA-plus by S&P.
Bank of America Merrill Lynch is slated to price the Massachusetts Department of Transportation's $445 million of metropolitan highway system revenue bonds on Tuesday, following a one day retail order period. The deal is rated A3 by Moody's and A-plus by S&P and Fitch.
William Blair and Co., are on the docket to price Connecticut's $320 of GO refunding bonds on Tuesday, following a one day retail order period. The deal is scheduled to mature serially from 2017 through 2023 and is rated Aa3 by Moody's and AA-minus by S&P, Fitch and Kroll Bond Rating Agency.
Some of the issuers scheduled to come to market this week, such as New Jersey, Connecticut and Pennsylvania all of some stigma of headline risk attached to them.
"Headline risk for certain issuers generally manifests itself in terms of a 'rate penalty'," said Colby. "I don't see anything on the horizon that prevents, categorically, any of them from coming to market. I anticipate the deals to be placed fairly, as long as issuers don't wait until the holiday week."
Secondary Market
Top- shelf municipal bonds finished stronger on Friday, after a strong employment report for November. Non-farm payrolls rose 178,000 last month, surpassing the 175,000 jobs gain predicted by economists surveyed by IFR Markets. The unemployment rate fell to 4.6%, a nine-year low. Economists polled by IFR Markets had forecast the unemployment rate would remain unchanged at 4.9%.
The yield on the 10-year benchmark muni general obligation fell four basis points to 2.54% on Friday from 2.58% on Thursday, while the yield on the 30-year fell one basis point to 3.34% from 3.35%, according to the final read of Municipal Market Data's triple-A scale.
Muni yields, however, were higher on the week. On Friday, Nov. 25, the 10-year muni yield stood at 2.37% while the 30-year muni yield was at 3.10%.
U.S. Treasuries strengthened on Friday. The yield on the two-year Treasury declined to 1.11% from 1.15% on Thursday, the 10-year Treasury dropped to 2.39% from 2.44%, while the yield on the 30-year Treasury bond decreased to 3.06% from 3.10%.
The 10-year muni to Treasury ratio was calculated at 104.0% on Friday compared to 105.6% on Thursday while the 30-year muni to Treasury ratio stood at 107.8% versus 108.1%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Dec. 2 were from California and New Jersey,
In the GO bond sector, the California 5s of 2034 were traded 28 times. In the revenue bond sector, the New Jersey Economic Development Authority 4s of 2041 were traded 99 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 20 times.
Week's Most Actively Quoted Issues
Illinois and New York issues were among the most actively quoted bonds in the week ended Dec. 2, according to Markit.
On the bid side, the Illinois taxable 6.63 of 2035 were quoted by 37 unique dealers. On the ask side, the Illinois taxable 5.1s of 2033 were quoted by 66 unique dealers. And among two-sided quotes, the N.Y. TSASC revenue 5.125s of 2042 were quoted by 17 unique dealers.
Lipper: Muni Bond Funds See Outflows
Municipal bond funds again reported outflows as investors pulled cash out of the market, according to Lipper data released late Thursday.
The weekly reporters saw $2.081 billion of outflows in the week ended Nov. 30, after outflows of $2.232 billion in the previous week.
The four-week moving average remained in the red at negative $1.815 billion after being negative $1.376 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 experienced outflows, losing $1.238 billion in the latest week after outflows of $1.467 billion in the previous week. Intermediate-term funds had outflows of $523.811 million after outflows of $500.210 million in the prior week.
National funds had outflows of $1.745 billion after outflows of $1.849 billion in the previous week. High-yield muni funds reported outflows of $714.491 million in the latest reporting week, after outflows of $929.623 million the previous week.
Exchange traded funds saw inflows of $6.013 million, after outflows of $77.721 million in the previous week.