Top shelf municipal bonds rallied on Friday, traders said, with yields on some maturities falling by as much as 17 basis points to record lows after Britain voted to leave the European Union.
Primary Market
Total volume for the week ahead is estimated by Ipreo at $8.2 billion, after a revised total of $9.3 billion was sold in the past week, according to Thomson Reuters data. The calendar includes $5.9 billion of negotiated deals and $2.3 billion of competitive sales.
"The market for munis has been strong and this will only add to the dynamic," said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management.
With next week being the last week of the month, and of the quarter and first half as well as the last full week before the holiday shortened week of July 4th, according to Heckman the market could go one of two ways.
"If they are relativity well priced, the deals will get soaked up," he said. "There are a lot of incentives for managers to be long in their portfolios and the demand will be tremendous, as it has been."
But Heckman said that when deals are overpriced, there are balances left over, and he could see that happening as well.
One trend that may continue is a pickup in taxable issuance. Several deals last week included taxable portions separate from the tax-exempts and a few similar deals are on the calendar for the upcoming week as well.
"With so many negative rates globally, we have seen an influx of foreign investors that started several months ago, and their appetite should increase," Heckman, said. "Investors are desperately searching for some level of return or income and this advent in the pickup in taxables, it's not just a short term trend but a long term one."
Heckman added that if recession concerns arise, taxable muni spreads won't widen to the degree that corporates would.
Washington State is expected to hit the market with four separate competitive sales totaling $1.3 billion on Tuesday. The largest deal is $535.125 million of various purpose general obligation refunding bonds. There are also $392.265 million of various purpose GO bonds, $272.470 million of motor vehicle fuel tax GO refunding bonds and $101.345 million of GO taxable bonds. All of the deals are rated Aa1 by Moody's and AA-plus by both S&P Global Ratings and Fitch Ratings.
The Commonwealth of Massachusetts will be selling three separate negotiated deals, totaling roughly $891 million. Bank of America Merrill Lynch is slated to price the two larger issues, the first of which is $441 million of GO refunding bonds on Wednesday, following a one day retail order period.
The firm will also price $250 million of GO consolidated loan of 2016 series F taxable green bonds on Wednesday.
Barclays is scheduled to price the Commonwealth's $200 million of GO consolidated loan of 2014 series D multi-modal bonds and subseries D-1 bonds on Wednesday. All three deals carry ratings of Aa1 by Moody's and AA-plus by Fitch.
Barclays is also on the docket to price the South Carolina Public Service Authority's $750 million of revenue obligations, which is expected to include a tax-exempt refunding portion as well as a taxable portion on Wednesday. The deal is rated A1 by Moody's, AA-minus by S&P and A-plus by Fitch.
BAML is slated to price San Antonio, Texas's $564 million of electric and gas systems revenue refunding bonds on Tuesday. The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
"We do see a pipeline of more issuance coming down the road," said Heckman. "It will slow down over the July holiday but towards the end of the summer and early fall I think we will see a significant pickup in issuance."
Heckman also noted that the long end of the curve is still one of the few values but that overall the curve is flattening and will continue to do.
Secondary Market
The yield on 10-year benchmark muni general obligation fell 17 basis points to 1.36% from 1.53% on Thursday, while the 30-year muni yield declined 15 basis points to 2.08% from 2.23%, according to the final read of Municipal Market Data's triple-A scale. At one stage during trading, yields were down by as much as 20 basis points.
U.S. Treasuries were also rallying Friday. The yield on the two-year Treasury declined to 0.65% from 0.77% on Wednesday, while the 10-year Treasury yield dropped to 1.57% from 1.74% and the yield on the 30-year Treasury bond decreased to 2.42% from 2.56%.
U.S. equities followed European stocks lower. In late trading, the Dow Jones Industrial Average was off 3.5%, the S&P 500 was down 3.6% and the Nasdaq was 4.2% lower. UK equities were off about 2.5%, while stocks in Germany and France fell by more than 6%.
The 10-year muni to Treasury ratio was calculated at 86.3% on Friday compared to 88.1% on Thursday, while the 30-year muni to Treasury ratio stood at 85.8% versus 87.3%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended June 24 were from California, New York and Oregon,
In the GO bond sector, the Los Angeles 3s of 2017 were traded 177 times. In the revenue bond sector, the N.Y. MTA 4s of 2036 were traded 81 times. And in the taxable bond sector, the Port Morrow, Ore. Revenue 1.782s of 2021 were traded 14 times.
Week's Most Actively Quoted Issues
California, South Carolina and Puerto Rico issues were among the most actively quoted names in the week ended June 24, according to Markit.
On the bid side, the California taxable 7.55s of 2039 were quoted by 12 unique dealers. On the ask side, the South Carolina PSA revenue 5s of 2046 were quoted by 19 unique dealers. And among two-sided quotes, the Puerto Rico Commonwealth GO 8s of 2035 were quoted by 11 dealers.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $362.1 million to $10.23 billion on Monday. The total is comprised of $3.15 billion of competitive sales and $7.08 billion of negotiated deals.
Muni Bond Funds Again See Inflows
For the 38th straight week, municipal bond funds reported inflows, according to Lipper data released Thursday. Weekly reporting funds saw $1.442 billion of inflows in the week ended June 22, after inflows of $904.450 million in the previous week, Lipper said.
The four-week moving average remained positive at $918.028 million after being in the green at $795.129 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 experienced inflows, gaining $1.039 billion in the latest week after inflows of $695.817 million in the previous week. Intermediate-term funds had inflows of $240.123 million after inflows of $165.993 million in the prior week.
National funds had inflows of $1.304 billion on top of inflows of $767.037 million in the previous week. High-yield muni funds reported inflows of $321.166 million in the latest reporting week, after inflows of $323.779 million the previous week.
Exchange traded funds saw inflows of $184.881 million, after inflows of $83.241 million in the previous week.
