A firmer Treasury market has pushed more buyers into the municipal secondary and primary markets on Tuesday.
After a quiet morning, secondary activity picked up considerably in what one North Carolina based trader called the "one of the most active days in a while." Meanwhile in the primary, the few deals on the calendar have placed successfully with wide subscription.
"There's just a limited amount of bonds out there," said the North Carolina trader. "When Treasuries firm up like they have been today, it's forcing people to enter the market reluctantly."
By noon on Tuesday Treasuries had weakened with the two-year note yield rising by six basis points to 0.56%, and yields for the 10-year and 30-year each rising by one basis point to 2.48% and 3.25%, respectively.
The flurry in secondary activity came after a quiet Monday, with investors saying the market was waiting for the Wednesday announcement by the Federal Open Market Committee, as well as other economic data scheduled for release this week. The FOMC meeting started Tuesday afternoon. Gross domestic product will be reported Wednesday, jobless claims on Thursday, and the employment situation and personal income and outlays on Friday.
The largest deal scheduled to price Tuesday is the $139.38 Hawaii highway revenue bonds. Pricing for the deal is expected to benefit from light issuance this week and a high demand in the market for bonds, said a trader in Virginia. Just last week municipal funds reported their highest inflows in months, and the primary market calendar for this week has contracted to $4.2 billion.
"I imagine [the Hawaii deal] will do pretty well," said the same Virginia-based trader. "With fund flows positive, high grader buyers will be here in full force."
Municipal funds reported their highest inflows in 11 weeks for the week ending July 23, suggesting demand may outpace supply this week. Funds that report weekly said inflows surged fourfold to $686.2 million, from $157.8 million the week before, the highest since the week ending May 7, when they totaled $943.2 million, according to Lipper FMI.
However, the deal may receive some uncertainty from investors concerned about the federal transportation budget, currently bouncing back and forth between the House and the Senate, said the Virginia trader.
"Congress hasn't passed a true transportation bill in something like half a decade," said the Virginia trader. "What they've done are these patchwork bills to provide funding to state for road repair."
One of these "patchwork" bills is set to expire soon, said the Virginia trader. Without a consensus on a new bill, the funding will dry up, putting pressure on highway authority revenues, and particularly the debt service associated with them.
The bonds earned ratings of Aa2 from Moody's Investors Service, AA-plus from Standard & Poor's and AA from Fitch Ratings.
Investors are also watching the McLeod Regional Medical Center deal, a $65 million negotiated deal from Florence County, S.C. The lead manager on the deal is JP Morgan and the financial advisor is Kaufman Hall. McLeod Regional is rated AA-minus by Standard & Poor's.
The $232.89 million San Antonio, Texas, general improvement and refunding bonds were priced by Piper Jaffray on Tuesday with yields ranging from 0.24% with a 4% coupon in 2015 to 3.40% with a 4% coupon in 2034. The bonds have an optional call at par in 2024, and received ratings of triple-A from the three major rating agencies.
Bonds maturing in four years carried yields of 0.80%, five basis points higher than they were during the bonds' premarketing.
San Antonio also issued $5.97 million in tax notes with yields ranging from 0.24% with a 2% coupon in 2016 to 1.17% with a 3% coupon in 2021. There is a sealed bid on the 2015 maturity.
The notes do not have a call option, and like the refunding bonds received triple-A ratings from the three major rating agencies. Interest accrues on August 20, 2024.
There are no competitive issuances over $100 million scheduled for auction on Tuesday.
Municipal bonds strengthened in the intermediate and long parts of the curve with yields for bonds maturing in six to 30 years dropping by as much as one basis point, according to Municipal Market Data's triple-A scale. The front end of the curve held steady.
