Muni Supply to Dip to $3.6B in Holiday Week

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Municipal market participants face meager supply in the coming week, with issuance forecast at less than $4 billion.

Primary Market

Ipreo estimates volume will fall $3.6 billion, from a revised total of $5.3 billion in the previous week, according to updated figures from Thomson Reuters. The new calendar for the holiday shortened week is composed of $2.1 billion of negotiated deals and $1.5 billion of competitive sales.

With President's Day on Monday, the week will only have four trading sessions. There are only 10 deals scheduled larger than $100 million, and the largest is just $281 million.

"Trading in both new issue and secondary is slow, and not really what I would call active," said Dan Heckman, senior fixed-income strategist, U.S. Bank Wealth Management. "There is lots of indecision, as traders and investors are wondering where interest rates are going, which has locked the market in a tight trading range."

Muni yields have been erratic of late. After Federal Reserve chair Janet Yellen's most recent testimony, which was seen as hawkish in ton, yields on 10-year munis spiked as much as 11 basis points in two days, before coming back a bit to end the week.

"There are lots of reasons for the Fed to act in March and if they did, we would see some further pressure on the short end of the curve," Heckman said. "I think the market isn't giving a high enough probability of a hike in March."

Citi is expected to price Alabama State Port Authority's $281 million of dock facilities revenue refunding bonds that will feature taxables, alternative-minimum tax and non-AMT bonds. The deal is scheduled to price the taxables on Wednesday and tax-exempts on Thursday. The underlying ratings are A-minus by S&P Global Ratings and Fitch Ratings. At least a portion of the deal will be insured by Assured Guaranty, which is rated AA by S&P.

The State of Delaware is scheduled to sell $225 million of general obligation bonds competitively on Thursday. The deal is rated triple-A by Moody's Investors Service, S&P and Fitch.

Citi is also on the docket to price California Educational Facilities Authority's $184 million of revenue bonds for Loma Linda University, that will feature taxables and tax exempts. Both are scheduled to mature serially. The taxable will price on Wednesday and will range from 2017 through 2047 and the tax-exempts will price on Thursday, mature serially from 2018 through 2033. The deal is rated Baa1 by Moody's and A by S&P.

JPMorgan is expected to price Michigan State Hospital Finance Authority's $178.52 million of refunding and project revenue bonds for Ascension Health Senior Credit Group on Wednesday. The deal is rated Aa2 by Moody's and AA-plus by S&P and Fitch.

Back to the competitive arena, Miami-Dade County is expected to sell $176.93 million of transit system sales surtax revenue refunding bonds on Thursday. The deal is rated AA by S&P and Fitch.

The Port of Seattle is slated to sell $129.935 million of limited tax GO bonds on Thursday. The deal is rated triple-A by Moody's and S&P and AA-minus by Fitch.

"There is a lot of pent up demand, as we have seen a healthy rate of calls and maturities," said Heckman. "I do think there is a cloud hanging over the market right now, one reason why buyers are not coming in as they normally would, and that is the overhang regarding tax reform. I believe that tax reform may not be as much of a negative as the market thinks."

Secondary Market

Top shelf municipal bond ended stronger on Friday. The 10-year benchmark muni general obligation yield fell four basis points to 2.37% from 2.41% on Thursday, while the yield on the 30-year GO dropped three basis points to 3.11% from 3.14%, according to the final read of Municipal Market Data's triple-A scale.

Treasuries were stronger on Friday. The yield on the two-year Treasury dipped to 1.19% from 1.20% on Thursday, while the 10-year Treasury dropped to 2.42% from 2.44%, and the yield on the 30-year Treasury bond decreased to 3.03% from 3.04%.

The 10-year muni to Treasury ratio was calculated at 97.9% on Friday compared to 98.4% on Thursday, while the 30-year muni to Treasury ratio stood at 102.8%, versus 103.0%, according to MMD.

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Feb. 17 were from New York, Utah and California, according to Markit.

In the GO bond sector, the New York City 0s of 2042 were traded 30 times. In the revenue bond sector, the Salt Lake City Airport, Utah, 5s of 2042 were traded 34 times. And in the taxable bond sector, the California 7.5s of 2034 were traded 17 times.

Week's Most Actively Quoted Issues

Puerto Rico, New York and Illinois names were among the most actively quoted bonds in the week ended Feb. 17, according to Markit.

On the bid side, the Puerto Rico Commonwealth GO 5s of 2041 were quoted by 53 unique dealers. On the ask side, the New York City GO 5s of 2028 were quoted by 306 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 29 unique dealers.

Lipper: Muni Bond Funds Report Inflows

Municipal bond funds again attracted inflows, according to Lipper data released late Thursday. The weekly reporters saw $480.072 million of inflows in the week ended Feb. 15, after inflows of $304.200 million in the previous week.

The four-week moving average remained in the green at positive $201.325 million, after being positive at $209.241 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 had inflows, gaining $464.295 million in the latest week after gaining $274.984 million in the previous week. Intermediate-term funds had outflows of $8.176 million after inflows of $60.887 million in the prior week.

National funds had inflows of $495.227 million after inflows of $293.215 million in the previous week. High-yield muni funds reported inflows of $481.705 million in the latest reporting week, after inflows of $286.427 million the previous week.

Exchange traded funds saw inflows of $12.103 million, after outflows of $62.055 million in the previous week.

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