Munis Mostly Steady as Market Gears for $9.1B Week

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Municipal bonds finished mostly unchanged on Friday, as traders prepared for a jolt of new issuance in the coming week. Five maturities saw yields lower by one or two basis points, while all other maturities were unchanged, according to traders.

Municipal bond volume is estimated at $9.1 billion for the coming week, according to Ipero, a big step up from the revised total of $4.5 billion in the past week, according to Thomson Reuters. The calendar consists of $6.2 billion of negotiated sales and $2.9 billion of competitive sales.

"Thus far, the 2016 weekly average has been $5.7 billion and for 2015 the weekly average was around $7 billion," wrote Daniel Berger, senior market strategist, Thomson Reuters/Municipal Market Data, in a weekly outlook.

One New York trader said that the higher volume is much welcomed and needed, as demand has been strong for quite some time.

The Florida Hurricane Catastrophe Fund plans to sell $1.2 billion of high-grade taxable bonds that an official said will offer muni investors an opportunity to pick up yield in the sweet spot of the curve.

The negotiated FHCF deal could price as early as next week with JPMorgan as the book-runner. The underwriters have been pre-marketing the deal, which was mistakenly placed on pricing calendars the first week of February, according to Ben Watkins, director of the Florida Division of Bond Finance.

Because of volatility in the Treasury market, the proxy for gauging taxable muni bond pricing, Watkins said the deal could be issued next week, although the decision when to price it will be based on day-to-day market conditions.

The offering is the first to be issued by the State Board of Administration Finance Corp., a moniker replacing the Florida Hurricane Catastrophe Fund Finance Corp., which state officials found confusing for prospective investors.

The state-run, nonprofit Cat Fund will use bond proceeds as liquidity to make timely payments on insurance claims from damages caused by hurricanes.

The issue, which is tentatively structured as 2019 and 2021 bullet maturities, is rated Aa3 by Moody's Investors Service and AA by Standard & Poor's and Fitch ratings.

Primary Market

Topping the calendar for deals that are scheduled to price in the upcoming week is the city of Houston's $800 million of combined utility system first lien revenue and refunding bonds. Wells Fargo is scheduled to price the bonds on Tuesday, where the structure is expected to mature serially from 2016-2040 as well as a term bond in 2045. The deal is rated Aa3 by Moody's and AA by both S&P and Fitch.

The New York City Transitional Finance Authority intends to sell $1 billion in a future tax secured subordinate bond sale on Tuesday, officials from the city's Office of Management and Budget and city Comptroller Scott Stringer announced.

A two-day retail period on Feb. 5 and Feb. 8 will precede a $750 million negotiated sale of tax-exempt, fixed-rate new-money bonds, where Bank of America Merrill Lynch is the bookrunner. The deal is rated Aa1 by Moody's and triple-A by both S&P and Fitch.

The TFA will also sell $250 million of taxable fixed-rate new money bonds through competitive bid on Tuesday, which is rated triple-A by Fitch.

Secondary Market

On Friday, the yield on the 10-year benchmark muni general obligation was steady from 1.66% on Thursday, while the 30-year muni yield was flat at 2.72%, according to a final read of Municipal Market Data's triple-A scale.

Treasuries were mostly stronger at the close on Friday. The yield on the two-year Treasury was up to 0.72% from 0.71% on Thursday, while the 10-year Treasury yield was lower at 1.84% from 1.86%, and the 30-year Treasury bond yield fell to 2.68% from 2.70%.

The 10-year muni to Treasury ratio was calculated on Friday at 86.7% compared to 89.2% on Thursday, while the 30-year muni to Treasury ratio stood at 99.7% versus 100.9%, according to MMD.

Municipal Bond Fund Inflows Extend to 18th Straight Week

Municipal bond funds reported inflows for the 18th week in a row, according to Lipper data released on Thursday.

Weekly reporting funds said they had $673.322 million of inflows in the week ended Feb. 3, after inflows of $594.785 million in the previous week, Lipper said.

The four-week moving average remained positive at $698.176 million after being in the green at $778.033 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 $309.068 million in the latest week, on top of inflows of $485.450 million in the previous week. Intermediate-term funds had inflows of $302.935 million after inflows of $164.233 million in the prior week.

National funds saw inflows of $557.545 million after inflows of $531.623 million in the prior week. High-yield muni funds reported inflows of $78.600 million in the latest reporting week, after inflows of $221.250 million the previous week.

Exchange traded funds saw inflows of $87.774 million, after inflows of $93.222 million in the previous week.

The Week's Most Actively Quoted Issues

California and Georgia were among some of the most actively quoted names in the week ended Feb. 5, according to data released by Markit.

On the bid side, the state of California taxable 7.5s of 2034 were quoted by 11 unique dealers. On the ask side, the Atlanta, Ga., water and wastewater revenue 5s of 2040 were quoted by 18 unique dealers. And among two-sided quotes, the state of California taxable 7.55s of 2039 were quoted by 18 dealers.

The Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Feb. 5 were in Puerto Rico, New York and California, according to Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 63 times. In the revenue bond sector, the New York state Thruway Authority 5s of 2019 traded 28 times. And in the taxable bond sector, the state of California 7.6s of 2040 traded 26 times, Markit said.

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