Polar Opposites: Chicago BOE & Slew of AAA Credits Highlight $5.4B Week

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Municipal volume is forecast to $5.4 billion in the upcoming week, after a volatile week in the markets.

Next week's volume is estimated by Ipreo to consist of $3.8 billion of negotiated deals and $1.6 billion of competitive sales. Volume will be a tad higher from the past week's revised total, which was $5.1 billion, according to Thomson Reuters.

"I think weekly volume will pick up as the quarter progresses, but as I wrote in my 2016 outlook, I see 2016 volume coming in below 2015 before it is over," said Alan Schankel, Municipal Strategist at Janney. "It is impossible to give an exact reason for lower volume although I think the pace of refundings will be slower this year just because refundings were slower in 2006 versus 2005 and most had 10 year calls."

The largest deal of the week comes from an issuer that has been the talk of the town lately – the Chicago Board of Education. JPM is scheduled to price the $875 million of unlimited tax general obligation bonds of dedicated revenue, which as of now is expected to have a tax-exempt series and a taxable series on Wednesday. The tax-exempt series is scheduled for $795.515 million in three term maturities in 2035, 2040 and 2044. The taxable series is for $79.485 and the term bonds are scheduled to be due in 2033.

The Chicago BOE has seen rating downgrades, state takeover talk and a cash crunch as of late. Standard and Poor's cut the CPS two notches to B-plus while Fitch Ratings chopped its rating by three, also to B-plus. The schools get their highest marks from Kroll, which gives the Board of Ed a grade of triple-B.

"I think Chicago schools are a unique credit, as they are now firmly ensconced in the high yield market. Competing with triple-A credits will have no impact on their sale," Schankel said.

The largest competitive sale also happens to be the second largest sale of the week, as Fairfax County, Va., will be selling $371.470 million of public improvement and refunding bonds on Tuesday. The deal is rated triple-A by Moody's Investors Service, S&P and Fitch.

Citi has won four of the past five competitive issues Fairfax has auctioned off, having most previously won $229 million with a true interest cost of 2.68% on Feb. 2, 2015.

Secondary Market

Municipal bonds ended weaker on Friday, traders said, as yields on top-rated maturities rose by as much as five basis points.

The yield on the 10-year benchmark muni general obligation increased three basis points to 1.75% from 1.72% on Thursday, while the 30-year muni yield was up five basis points to 2.76% from 2.71%, according to the final read of Municipal Market Data's triple-A scale.

For the week, munis were weaker on the long end. On Friday, Jan. 15, the yield on the 10-year muni stood at 1.75% while the yield on the 30-year muni was at 2.70%.

Treasuries were lower in late trade. The yield on the two-year Treasury rose to 0.87% from 0.83% on Thursday, while the 10-year Treasury yield gained to 2.05% from 2.02% and the 30-year Treasury bond yield increased to 2.82% from 2.80%.

The 10-year muni to Treasury ratio was calculated on Friday at 85.4% compared to 85.3% on Thursday, while the 30-year muni to Treasury ratio stood at 97.8% versus 96.9%, according to MMD.

Primary Market

In other deals in the coming week, Ramirez and Company is scheduled to price Nassau County, N.Y.'s $273 million GO general improvement bonds on Tuesday, following a retail order period on Monday. The deal is rated A2 by Moody's, A-plus by S&P and A by Fitch.

S&P recently revised its outlook to negative from stable and affirmed its A-plus long-term rating on Nassau County, N.Y.'s general obligation bonds.

"The outlook change is based on the county's further compromised budgetary flexibility and continued very weak adjusted budgetary performance despite significant efforts to increase recurring revenues while limiting expenditure growth," said Ruth Ducret, a credit analyst at S&P.

Schankel said that he thinks the negative outlook from S&P, may cost the county a few basis points.

Elsewhere, JP Morgan is set to price the remarketing of the state of Connecticut Health and Educational Facilities Authority's $250 million of revenue bonds for Yale University on Thursday. It is anticipated that the deal will consist of two series', both for $125 million. The deal is rated triple-A by both Moody's and S&P.

Wells Fargo is slated to price the Airport Commission of the City and County of San Francisco's $239.765 million of second series revenue refunding bonds for the SF International Airport on Tuesday. The deal is scheduled to mature serially from 2021-2032 and is rated A1 by Moody's and A-plus by S&P and Fitch.

The Federal Open Market Committee will meet Tuesday and Wednesday, with an announcement at 2 p.m. on Wednesday. Nearly all observers expect the Fed to hold rates at this meeting.

Despite the inaction on rates, the statement should be interesting in terms of perhaps suggesting increased caution in the face of lower inflation due to continuing oil price declines.

Bond Buyer Visible Supply

The Bond Buyer's 30-day visible supply calendar fell $338 million to $8.18 billion on Monday. The total is comprised of $2.85 billion competitive sales and $5.33 billion of negotiated deals.

Municipal Bond Funds See Inflows for 16th Straight Week

Municipal bond funds reported inflows for the 16th week in a row, according to Lipper data released on Thursday.

Weekly reporting funds said they had $529.687 million of inflows in the week ended Jan. 20, after inflows of $994.911 million in the previous week, Lipper said.

The four-week moving average remained positive at $954.206 million after being in the green at $2.024 billion 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 $91.669 million in the latest week, on top of inflows of $667.366 million in the previous week. Intermediate-term funds had inflows of $502.939 million after inflows of $251.084 million in the prior week.

National funds saw inflows of $475.167 million after inflows of $920.013 million in the prior week. High-yield muni funds reported inflows of $231.066 million in the latest reporting week, after an inflow of $399.087 million the previous week.

Exchange traded funds saw inflows of $107.761 million, after inflows of $165.154 million in the previous week.

In the week ended Jan. 13, long-term, long-term municipal bond funds saw inflows, according to the Investment Company Institute. Muni funds saw $1.319 billion of inflows after $1.382 billion of inflows in the previous week, ICI reported.

The Week's Most Actively Quoted Issues

California was among some of the most actively quoted names in the week ended Jan. 22, according to data released by Markit.

On the bid side, the California Golden State Tobacco Securitization Corp. revenue 5.75s of 2047 were quoted by 11 unique dealers. On the ask side, the San Diego Unified School District, Calif. GO 5s of 2028 were quoted by 20 unique dealers. And among two-sided quotes, the state of California taxable 7.55s of 2039 were quoted by 14 dealers.

The Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended Jan. 22 were in Puerto Rico, Indiana and Illinois, according to Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 30 times. In the revenue bond sector, the Indiana Finance Authority 4s of 2051 traded 83 times. And in the taxable bond sector, the Illinois state 5.1s of 2033 traded 22 times, Markit said.

 

 

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