Muni Market Heading Into 'Comfortable' $9.1B Week

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Muni issuance is set for a return to a more comfortable level after two of the biggest weeks of the year.

Primary Market

Volume for the week ending Nov. 4 is forecast by Ipreo to dip to $9.08 billion, from a total of $11.67 billion in the past week, according to revised data from Thomson Reuters. The upcoming slate is composed of $7.38 billion of negotiated bond deals and $1.70 billion of competitive bond sales.

According to MMD, the 2016 weekly average has climbed to about $8.2 billion after the two weeks of more than $10 billion in sales.

"Demand continues to be strong and broad based," said Jim Grabovac, senior portfolio manager at McDonnell Investment Management. "We have seen an array of different investors from institutional buyers to bank portfolios and cross-over buyers in the long-end of the curve."

Bank of America Merrill Lynch is expected to price the largest deal on the schedule, Chicago's $1.055 billion of O'Hare International Airport – general senior lien revenue refunding bonds, including alternative minimum tax and non-AMT on Tuesday. The deal is rated A by S&P Global Ratings and Fitch Ratings.

"Overall the city expects to achieve significant present value savings currently estimated at $111 million from this transaction," the city's deputy chief financial officer, Kelly Flannery, said in an investor presentation released this past week. Frasca & Associates LLC and Columbia Capital Management LLC are advising the city on the deal.

Citi is scheduled to price the Port Authority of New York and New Jersey's $733 million of bonds, which will feature both AMT and non-AMT portions on Tuesday, following a one day retail order period. The deal has expected ratings of Aa3 by Moody's Investors Service and AA by S&P and Fitch.

The State of Illinois will bring the biggest competitive deal of the week, as the state is slated to sell $480 million of general obligation bonds on Thursday. The deal is rated Baa2 by Moody's, BBB by S&P and BBB-plus by Fitch.

"How will these bonds price? Over the past several weeks, Illinois blocks have traded in the plus 195- plus 200 basis point range," said Randy Smolik, MMD's senior market analyst. "The $1.3 billion negotiated sale on Oct. 13 came at plus 200 basis points."

The most recent Illinois competitive sale came back on June 16, when BAML bought the $550 million of Illinois GO with a true interest cost of 3.74%.

"Investors are more worried about accumulating and maintaining income than they are about rate increases, and most buyers have welcomed the back up in yields," Grabovac said. "After the about 25 basis point back up in yield, I think the market is in a comfortable level right now."

Secondary Market

The yield on the 10-year benchmark muni general obligation on Friday fell two basis points to 1.74% from 1.76% on Thursday, while the yield on the 30-year dropped three two basis points to 2.57% from 2.60%, according to the final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were mixed on Friday. The yield on the two-year fell to 0.85% from 0.88% on Thursday, the 10-year Treasury yield was unchanged from 1.84% and the yield on the 30-year Treasury bond increased to 2.62% from 2.60%.

The 10-year muni to Treasury ratio was calculated at 94.1% on Friday compared to 95.6% on Thursday, while the 30-year muni to Treasury ratio stood at 98.1% versus 100.0%, according to MMD.

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Oct. 28 were from California, New Jersey and Pennsylvania, according to Markit.

In the GO bond sector, the Twin Rivers Unified School District, Calif., 3.375s of 2043 were traded 35 times. In the revenue bond sector, the New Jersey Transportation Trust Fund Authority 4.1s of 2031 were traded 106 times. And in the taxable bond sector, the Commonwealth Financing Authority of Pennsylvania 4.144s of 2038 were traded 44 times.

Week's Most Actively Quoted Issues

Illinois, New Jersey and Puerto Rico issues were among the most actively quoted bonds in the week ended Oct. 28, according to Markit.

On the bid side, the Illinois GO 5s of 2018 were quoted by 454 unique dealers. On the ask side, the New Jersey Health Care Facilities Finance Authority revenue 3.5s of 2034 were quoted by 320 unique dealers. And among two-sided quotes, the Puerto Rico Highway and Transportation Authority revenue 5.25s of 2032 were quoted by 16 unique dealers.

Lipper: Muni Bond Funds See Inflows

Only one week after cash withdrawals brought a 54 week streak of inflows to an end, municipal bond funds reported that investor money returned, according to Lipper data released on Thursday.

The weekly reporters saw $334.917 million of inflows in the week ended Oct. 26, more than erasing outflows of $135.937 million in the previous week.

The four-week moving average remained positive at $167.723 million after being in the green at $250.058 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 inflows again, gaining $216.109 million in the latest week after outflows of $553.787 million in the previous week. Intermediate-term funds had inflows of $90.083 million after inflows of $316.627 million in the prior week.

National funds had inflows of $337.143 million after outflows of $171.326 million in the previous week. High-yield muni funds reported inflows of $33.092 million in the latest reporting week, after outflows of $460.438 million the previous week.

Exchange traded funds saw inflows of $79.104 million, after outflows of $109.062 million in the previous week.

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