Munis Weaken Ahead of $6.8B New Issue Slate

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Top shelf municipal bonds ended weaker on Friday, according to traders, who were looking ahead to the upcoming new issue calendar. Ipreo estimates volume for the new week at $6.8 billion, up from a revised $4.8 billion sold in the prior week, according to updated date from Thomson Reuters.

"Last week the market got weaker," Dawn Mangerson, managing director and senior portfolio manager at McDonnell Investment Management, said on Friday. "Even though we are now seeing positive fund flows, the market was having a hard time getting deals done last week, and that was surprising."

Mangerson also said there was pent up demand due to a prolonged period of practically no issuance.

"Some of those specialty state issuers were way oversubscribed, it was the generic names that had difficulty getting done," she said.

The new week's slate consists of $4.7 billion of negotiated deals and $2.2 billion of competitive sales.

"The upcoming calendar offers a greater variety of names, and there are lots of decent sized deals and none that are so large they won't get done," Mangerson said.

The biggest offering of the week is a negotiated deal from Baltimore. Citigroup is set to price the Mayor and City Council's $486 million of Series 2017A-C revenue bonds for water and wastewater projects on Thursday. The deal is rated Aa2 by Moody's Investors Service and AA by S&P Global Ratings.

Next up is a $457.23 million competitive sale from the Metropolitan Government of Nashville and Davidson County, Tenn. The Series 2017 unlimited tax general obligation bonds, which are selling on Tuesday, are rated Aa2 by Moody's and AA by S&P.

Bank of America Merrill Lynch is expected to price the San Francisco Bay Area Toll Authority, Calif.'s $450 million of Series 2017 F-1 revenue bonds and Series 2017 S-7 subordinate bonds on Thursday. The deal is rated Aa3 by Moody's and AA by S&P and Fitch Ratings.

The Los Angeles County Metropolitan Transportation Authority, Calif., is competitively selling $455.71 million of Series 2017A Proposition C sales tax revenue bonds on Wednesday. The deal is rated Aa2 by Moody's and AA-plus by S&P.

"There is always such strong demand for California paper, and that won't change anytime soon," Mangerson said. "I suspect those deals will be well oversubscribed."

RBC Capital Markets is set to price Philadelphia, Pa.'s $279.99 million of Series 2017 GO refunding bonds on Tuesday. The deal is rated A2 by Moody's, A-plus by S&P and A-minus by Fitch.

Jefferies is expected to price the Texas Public Finance Authority's $275 million of Series 2017 taxable GO and refunding bonds on Wednesday.

"We have seen a big retracement of yields [since the spike after the election], and we are seeing inflows again," Mangerson said. "Those make for a pretty healthy market."

 

Secondary Market

The 10-year benchmark muni general obligation yield rose seven basis points to 2.33% from 2.26% on Thursday, while the yield on the 30-year GO increased five basis points to 3.06% from 3.01%, according to a final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were mixed on Friday. The yield on the two-year Treasury fell to 1.19% from 1.22% on Thursday, while the 10-year Treasury yield was unchanged from 2.46%, and the yield on the 30-year Treasury bond increased to 3.04% from 3.03%.

The 10-year muni to Treasury ratio was calculated at 94.5% on Friday compared to 91.9% on Thursday, while the 30-year muni to Treasury ratio stood at 100.5%, versus 99.2%, according to MMD.

 

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Jan. 20 were from Texas, New York and Wisconsin, according to Markit.

In the GO bond sector, the Klein ISD, Texas, 4s of 2046 were traded 44 times. In the revenue bond sector, the New York Triborough Bridge and Tunnel Authority 5s of 2047 were traded 108 times. And in the taxable bond sector, the Wisconsin 3.954s of 2036 were traded 91 times.

 

Week's Most Actively Quoted Issues

Puerto Rico, New Jersey and California names were among the most actively quoted bonds in the week ended Jan. 20, according to Markit.

On the bid side, the Puerto Rico Public Buildings Authority revenue 5.25s of 2042 were quoted by 40 unique dealers. On the ask side, the New Jersey Economic Development Authority revenue 4s of 2027 were quoted by 218 unique dealers. And among two-sided quotes, the California taxable 7.3s of 2039 were quoted by 17 unique dealers.

 

Lipper: Muni Bond Funds Report Inflows

Municipal bond funds attracted inflows again as investors continued their return to the market, according to Lipper data released late Thursday. The weekly reporters saw $511.739 million of inflows in the week ended Jan. 18, after inflows of $974.172 million in the previous week.

The four-week moving average remained in the red at negative $265.669 million after being negative $890.596 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 $421.726 million in the latest week after gaining $982.916 million in the previous week. Intermediate-term funds had inflows of $96.682 million after inflows of $61.462 million in the prior week.

National funds had inflows of $471.471 million after inflows of $933.337 million in the previous week. High-yield muni funds reported inflows of $442.286 million in the latest reporting week, after inflows of $796.091 million the previous week.

Exchange traded funds saw outflows of $33.755 million, after inflows of $183.828 million in the previous week.

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