Muni Traders Ponder Yield Direction as Weeks Winds Down

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Municipal bond traders on Friday are finishing up their business for the week as they think about the future direction of muni yields.

Secondary Market

U.S. Treasuries were weaker on Friday. The yield on the two-year Treasury inched up to 1.11% from 1.10% on Thursday, the 10-year Treasury rose to 2.41% from 2.38%, while the yield on the 30-year Treasury bond increased to 3.12% from 3.08%.

Top-quality municipal bonds finished weaker on Thursday. The yield on the 10-year benchmark muni general obligation rose one basis point to 2.29% from 2.28% on Wednesday, while the yield on the 30-year increased three basis points to 3.10% from 3.07%, according to the final read of Municipal Market Data's triple-A scale.

On Thursday, the 10-year muni to Treasury ratio was calculated at 95.9% compared to 97.2% on Wednesday while the 30-year muni to Treasury ratio stood at 100.4% versus 101.4%, according to MMD.

MSRB: Previous Session's Activity

The Municipal Securities Rulemaking Board reported 49,148 trades on Thursday on volume of $15.72 billion.

Primary Market

New York City came to market this week with over $1 billion of general obligation bonds in negotiated tax-exempt and competitive taxable offerings, in a sale that satisfied both issuer and buyers.

On Tuesday, Jefferies priced NYC's $804.33 million of Fiscal 2008 and 2017 tax-exempt bonds for institutions after holding a one-day retail order period, which was originally slated to be two days.

The city said its tax-exempt GOs met with exceptionally strong market reception. The demand let the city lower interest rates on almost all maturities by between three and 12 basis points.

The city's competitive deals were also moved up by a day, with the city selling $200 million of taxable GOs in two separate offerings on Tuesday.

JPMorgan Securities won the $149.915 million of Fiscal 2017 Subseries B-2 taxable GOs with a true interest cost of 2.915%. JPMorgan also won the $50.085 million of Fiscal 2017 Subseries B-3 taxable GOs with a TIC of 3.531%.

All the deals are rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.

Pennsylvania competitively sold $613.145 million of general obligation refunding bonds, second refunding series of 2016. JPMorgan Securities won the bonds with a TIC of 2.73%. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.

New Jersey competitively sold $300 million of various purpose GOs, which were won by Bank of America Merrill Lynch with a TIC of 3.76%. The bonds are rated A2 by Moody's, A-minus by S&P and A by Fitch.

Portland, Ore., competitively sold $168.53 million of Series 2016A first lien water system revenue and refunding bonds. JPMorgan won the deal with a TIC of 3.24%. The deal is rated Aaa by Moody's.

Los Angeles sold $144.07 million of taxable Series 2016A general obligation refunding bonds. Morgan Stanley won the deal with a true interest cost of 2.97%. The deal is rated Aa2 by Moody's.

Back in the negotiated sector, JPMorgan priced the New York City Housing Development Corp.'s $503.74 million of multi-family housing revenue bonds. The sustainable neighborhood bonds consist of Series 2016 I-1, I-2, and index floating rate Series 2016 J-1 and J-2. The deal is rated Aa2 by Moody's and AA-plus by S&P.

Citigroup priced the Central Puget Sound Regional Transit Authority, Wash.'s $400 million of Series 2016 S-1 sales tax and motor vehicle excise tax green bonds. The deal is rated Aa2 by Moody's and AAA by S&P.

JPMorgan priced the Phoenix Civic Improvement Corp., Ariz.'s $377.595 million of Series 2016 junior lien water system revenue refunding bonds. The deal is rated Aa2 by Moody's and AAA by S&P.

William Blair & Co. priced Connecticut's $327.65 million of Series 2016G GO refunding bonds for institutions after holding a one-day retail order period on Monday. The deal is rated Aa3 by Moody's and AA-minus by S&P, Fitch and Kroll Bond Rating Agency.

BAML priced the California Municipal Finance Authority's $202.865 million of Series 2017A revenue bonds for the NorthBay Healthcare group. The deal is rated BBB-minus by S&P.

Citigroup priced the state of Mississippi's $190.64 million of Series 2016B tax-exempt GOs. The deal is rated Aa2 by Moody's and AA by S&P and Fitch.

RBC Capital Markets priced Sacramento County, Calif.'s $183.79 million of airport system senior revenue refunding and subordinate bonds. The senior bonds are rated A3 by Moody's and A by S&P, while the subordinate bonds are rated Baa1 by Moody's and A-minus by S&P.

Wells Fargo Securities priced the Minneapolis-St. Paul Metropolitan Airports Commission's $171.71 million of taxable Series 2016E subordinate airport revenue bonds. The deal is rated A-plus by S&P and Fitch.

JPMorgan priced the New Jersey Educational Facilities Authority's $140.69 million of revenue bonds, Series 2016B higher education capital improvement fund issue. The deal is rated A3 by Moody's, BBB-plus by S&P and A-minus by Fitch and Kroll.

Siebert Cisneros Shank priced the Love Field Airport Modernization Corp., Texas' $117.27 million of Series 2017 general airport revenue bonds. The issuer is a not-for-profit acting on behalf of the city of Dallas. The issue, which is subject to the alternative minimum tax, is rated A1 by Moody's and A by S&P and Fitch.

Bond Buyer Visible Supply

The Bond Buyer's 30-day visible supply calendar decreased $965.4 million to $9.16 billion on Friday. The total is comprised of $1.80 billion of competitive sales and $7.36 billion of negotiated deals.

Lipper: Muni Bond Funds See Outflows

Municipal bond funds reported outflows as investors pulled cash out of the market, according to Lipper data released late Thursday.

The weekly reporters saw $2.213 billion of outflows in the week ended Dec. 7, after outflows of $2.081 billion in the previous week.

The four-week moving average remained in the red at negative $2.385 billion after being negative $1.815 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 outflows, losing $1.208 billion in the latest week after outflows of $1.238 billion in the previous week. Intermediate-term funds had outflows of $690.530 million after outflows of $523.811 million in the prior week.

National funds had outflows of $1.750 billion after outflows of $1.745 billion in the previous week. High-yield muni funds reported outflows of $775.563 million in the latest reporting week, after outflows of $714.491 million the previous week.

Exchange traded funds saw outflows of $127.509 million, after inflows of $6.013 million in the previous week.

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