Muni Market Gears Up for More Issuance

The municipal bond market was preparing to handle a second big day of this week's new supply, which is mostly coming from the competitive sector on Wednesday.

Leading the pack is a general obligation bond sale from Louisiana that is being watched closely due to the state's large budget deficit.

Secondary Market

Treasury prices were mixed on Wednesday as the yield on the two-year Treasury note was flat from 0.62% on Tuesday, while the 10-year yield rose to 2.19% from 2.18% and the 30-year yield was up to 2.92% from 2.90%.

The yield on the 10-year benchmark muni general obligation on Tuesday finished two basis points higher at 2.18% from 2.16% on Monday, while the yield on the 30-year GO rose by four basis points to 3.13% from 3.09%, according to the final read of Municipal Market Data's triple-A scale.

The 10-year muni to Treasury ratio was calculated on Tuesday at 100.2% versus 101.3% on Monday, while the 30-year muni to Treasury ratio stood at 107.7% compared to 107.9%, according to MMD.

Primary Market

The state of Louisiana is scheduled to sell $335 million of Series 2015A and 2015B various purpose GO refunding bonds on Wednesday. The issue is rated Aa2 by Moody's and AA by S&P and Fitch.

The sale is taking place despite amid ongoing questions surrounding the state's budget deficit.

"I don't know what kind of reception we'll get on Wednesday," said State Treasurer John Kennedy. "We had worked very hard on the preliminary official statement to disclose everything, warts and all."

Nearly two pages of the POS for Wednesday's GO deal describe the state's projected $1.6 billion deficit for fiscal 2016 and measures proposed by the governor and legislature to close the gap.

Kennedy said he hoped investors would not penalize the state for disclosing its budget problems. The Bond Commission will meet Wednesday morning to decide whether to accept or reject the bids for the GO sale, he added.

The last time the state sold bonds competitively was on Nov. 20, 2014, when Citi won $199.99 million of Series 2014 D-1 GOs with a TIC of 3.0317%.

Also in the competitive arena, Seattle is set to offer two separate issues totaling $323 million. The sales consist of $157 million of Series 2015 unlimited tax GO improvement bonds and $166 million of Series 2015A limited tax GO improvement and refunding bonds. Both sales are rated Aa1 by Moody's, triple-A by S&P and AA-plus by Fitch.

The last time Seattle sold bonds competitively was on April 1, 2014, when BAML won $62.77 million of Series 2014 limited tax GO improvement and refunding bonds with a TIC of 2.4898%.

The Los Angeles Unified School District is slated to sell $330 million of Series 2015A GO refunding bonds on Wednesday. The bonds are rated Aa2 by Moody's and AA-minus by S&P.

The last time LAUSD sold GOs competitively was on Sept. 22, 2004, when Bank of America Merrill Lynch won $16.9 million of 2004 Series D election of 2004 GOs with a TIC of 2.2031%.

Bond Buyer Visible Supply

The Bond Buyer's 30-day visible supply calendar decreased $1.176 billion to $11.227 billion on Wednesday. The total is comprised of $3.922 billion competitive sales and $7.305 billion of negotiated deals.

MSRB Previous Session's Activity

The Municipal Securities Rulemaking Board reported 44,830 trades on Tuesday on volume of $10.971 billion.

The most active bond, based on the number of trades, was the Puerto Rico Sales Tax Financing Corp.'s sales tax revenue bonds first subordinate Series 2010 C 5 1/2s of 2040, which traded 175 times at an average price of 55.875 with an average yield of 10.516%. The bonds were initially priced at 100.00 to yield 5.50%.

Shelly Sigo contributed to this story.

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