Munis Finish Flat Ahead of Holiday-Shortened Week

Prices of top-shelf municipal bonds closed mostly steady on Friday, traders said, as yields remained flat after rising on Thursday. For the week, munis stayed nearly unchanged in four out of the five trading sessions.

The market will close at noon, EDT, on Good Friday, but traders are expecting to see about $8 billion of new supply come to market in the rest of the upcoming week.

 

Secondary Market

Prices of top-rated munis finished out the week unchanged. The yield on the 10-year benchmark muni general obligation on Thursday was the same as Thursday at 1.96%, while the yield on 30-year GO remained at 2.80%, according to the final read of Municipal Market Data's triple-A scale. On Monday, the yield on the 10-year stood at 1.94% and the yield on the 30-year was at 2.76%.

Treasury prices were higher on Friday. The yield on the two-year Treasury note dropped to 0.59% from 0.62% on Thursday, while the 10-year yield decreased to 1.95% from 2.00% and the 30-year yield declined to 2.53% from 2.59%.

The 10-year muni to Treasury ratio was calculated on Friday at 100.8% versus 96.3% on Thursday, while the 30-year muni to Treasury ratio stood at 111.0% compared to 107.0%.

Primary Market

Traders are expecting to see about $8 billion of negotiated offerings and $933.3 million of competitive sales come to market in the upcoming week.

But one deal they won't be seeing is the big note sale from the Posey County Economic Development Partnership, Ind. Originally scheduled to be priced in the upcoming week, the $1.26 billion refunding note deal issued for the Midwest Fertilizer Co. came to market on Friday. The offering was remarketed by Citi. The notes were priced at par to yield 0.25% on July 1, 2046, with a mandatory put date of Nov. 3, 2015. The issue is rated A-1-plus by Standard & Poor's,

The notes were last remarketed on Nov. 14, 2014 by Citi and priced at par to yield 0.23% with a maturity date of July 1, 2046 and a mandatory put date of April 2, 2015.

It was tobacco bonds that were on the minds of many traders during the past week as a $1.7 billion sale from California took center stage.

Issuers have been taking advantage of historically low interest rates to refinance older securities. And Citi priced the California's Golden State Tobacco Securitization Corp.'s $1.7 billion of Series 2015A enhanced tobacco settlement asset-backed bonds for institutions on Wednesday after a one-day retail order period. The bonds, which were rated A1 by Moody's Investors Service and A by Standard & Poor's and Fitch Ratings, were repriced to take advantage of market conditions.

The final pricing saw the issue yielding from 0.28% with a 2% coupon in 2016 to 1.87% with a 5% coupon in 2022; as 5s to yield 2.43% in 2026; as 4s to yield 3.43% in 2031; as 3 1/4s to yield 3.54% and as 5s to yield 3.12% in a split 2032 maturity; as 5s to yield 3.18% in 2033; as 3 1/4s to yield 3.62% and as 5s to yield 3.22% in a split 2034 maturity; as 4s to yield 3.65% and as 5s to yield 3.25% in a split 2035 maturity; as 5s to yield 3.33% in 2040; and as 5s to yield 3.38% in a 2045 maturity.

Traders said the issue turned out to be a good deal all around - for both the sellers and the buyers.

"The borrower is getting a good deal and the issuer is getting triple-digit spreads," a bond trader said.

Citi also priced the Northeast Independent School District, Texas' $345.19 million of bonds late on Wednesday. The bonds were backed by the Permanent School Fund guarantee program and rated triple-A by Moody's and S&P.

Also during the week, JPMorgan priced the Virginia CBA's $668.98 million 21st Century College and Equipment Programs educational facilities revenue and revenue refunding bonds. The bonds were rated Aa1 by Moody's and AA-plus by S&P and Fitch.

Anne Arundel County, Md., sold two separate competitive deals totaling $383.70 million. Bank of America Merrill Lynch won the $269 million of general obligation bonds with a true interest cost of 2.8327%. BAML also won $114.70 million of GOs with a TIC of 2.3044%. Both sales are rated Aa1 by Moody's, triple-A by S&P and AA-plus by Fitch.

The University of Kentucky sold three separate competitive issues totaling about $280 million. Morgan Stanley won UK's $148.93 million of Series 2015 A general receipts bonds with a TIC of 3.6044%. Morgan Stanley also won the $110.76 million of Series 2015 B general receipts refunding bonds with a TIC of 2.2997%. Citigroup won UK's $19.70 million of general receipts refunding bonds with a TIC of 1.9576%. All three issues are rated Aa2 by Moody's and AA by S&P.

"The market absorbed the volume this week, as there were a good variety of deals to choose from," the bond trader said, adding "the Golden State tobaccos and Anne Arundel bonds were the two headliners."

 

The Week's Most Actively Quoted Issues

Chicago and Texas names were among the most actively quoted issues in the week ended March 27, according to data released by Markit.

On the bid side, the California 7 1/2s of 2034 were quoted by 11 unique dealers. On the ask side, the California Department of Water and Power supply revenue 5s of 2019 were quoted by 12 dealers. And among two-sided quotes, the Texas Transportation Commission Central Texas Turnpike System revenue 5s of 2042 were quoted by 13 dealers, Markit said.

The Week's Most Actively Traded Issues

Among the most actively traded issues in the week ended March 27, were issuers from Puerto Rico, California and New York, according to Markit.

In the GO bond sector, Puerto Rico 8s of 2035 were traded 37 times. In the revenue bond sector, California's Golden State Tobacco Securitization Cop. 5s of 2045 were traded 92 times. And in the taxable bond sector, the New York City Transitional Finance Authority 5.508s of 2037 were traded 16 times, according to Markit.

Tax-Exempt Bond Funds See Inflows

Municipal bond funds which report weekly posted $581.664 million of inflows in the week ended March 25, after experiencing inflows of $133.676 million in the week ended March 18, according to the latest Lipper data. It was the 11th straight week muni funds experienced inflows.

The four-week moving average remained positive at $319.195 million in the latest week after being in the green at $281.111 million in the prior week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Muni bond funds so far have experienced inflows in each week of 2015, according to Lipper data. Inflows for the year total about $5.51 billion.

Long-term muni bond funds saw inflows of $569.870 million in the latest week, after experiencing inflows of $137.153 million in the previous week.

High-yield muni funds recorded an inflow of $306.515 million in the latest reporting week, after seeing inflows of $90.989 million in the previous week. Exchange-traded funds had inflows of $83.348 million, after recording inflows of $73.093 million in the previous week.

In contrast, long-term municipal bond mutual funds posted $190 million of inflows in the week ended March 18, according to the Investment Company Institute. ICI reported that inflows into long-term funds were $276 million in the previous week.

Bond Buyer Visible Supply

The Bond Buyer's 30-day visible supply calendar increased $3.613 billion to $11.990 billion on Friday. The total is comprised of $2.394 billion competitive sales and $9.596 billion of negotiated deals.

MSRB Previous Session's Activity

The Municipal Securities Rulemaking Board reported 40,463 trades on Thursday on volume of $13.058 billion. Most active based on the number of trades was the Kentucky Municipal Power Agency's Series 2015A Prairie State project power system revenue refunding 4s of 2039, which traded 210 times at an average price of 99.811 with an average yield of 3.999%; (initial offering price of 97.858, an initial offering yield of 4.14%).

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