Munis were mixed at Friday's close, as traders awaited a variety of deal types and sizes in the coming week.
Short term yields rose as much as two basis points while some longer term yields fell two basis points, according to traders, who expect the market to easily absorb the planned bond sales.
Primary Market
Total volume for the coming week is estimated by Ipreo at $7.68 billion, down from a revised total of $9.65 billion in the past week, according to Thomson Reuters data. The calendar includes $5.45 billion of negotiated deals and $2.23 billion of competitive sales.
The calendar offers deals from throughout the county, unlike the past week, when a bulk of the issuance was from New York. Water and transportation deals are prominent among the offerings.
"We continue to have slack volume and very strong inflows," said Jim Grabovac, managing director and senior portfolio manager at McDonnell Investment Management. "We have now had 33 straight weeks [of inflows] and they have surprisingly accelerated during tax season. The market feels under-supplied and it has been that way for quite some time."
JPMorgan is set to price the largest deal of the week, the Public Facilities Financing Authority of the city of San Diego's $567.96 million of subordinated water revenue bonds. The pricing date hasn't been set. The bonds are expected to mature serially from 2016-2039 with term bonds in 2041 and 2045. The deal is rated Aa3 by Moody's Investors Service and AA-minus by Fitch Ratings.
PNC Capital Markets is scheduled to price the Pennsylvania Turnpike Commission's $545.135 million of subordinate revenue refunding bonds on Tuesday. The deal is rated A3 by Moody's and A-minus by Fitch.
Bank of America Merrill Lynch is slated to price the state of Connecticut's $511 million of general obligation refunding bonds on Tuesday, following a one day retail order period. The deal is rated Aa3 by Moody's. Both S&P Global Ratings and Fitch downgraded the Constitution States' GO debt to AA-minus from AA on May 19, citing loss of budgetary flexibility.
Market sources said that a downgrade has been largely discounted by the market, so widening of spreads won't be significant. It was also noted that credit spreads are becoming so narrow that one notch rating differential is not as meaningful as it was a year ago.
Grabovac said that when it comes to headline risk, it is very issuer specific and that the street is experienced at placing cheaper trades.
"The amount of cash that is on the sideline is sufficient enough that deals will continue to get done and get done comfortably in the present environment," he said.
That combined with investors' appetite for yield should be a recipe for oversubscribed deals.
On Wedesday, Barclays Capital is expected to price the city of Chicago's Midway Airport's $348.315 million of second lien revenue and revenue refunding bonds, which are expected to feature an alternative minimum tax series and a non-AMT series. The deal is rated A by S&P, Fitch and Kroll Bond Rating Agency.
The largest single competitive deal will come from the Lone Star state, as Fort Worth is set to sell $164.545 million of general purpose refunding improvement bonds on Wednesday. The issue is one of three deals totaling $257.965 million that Fort Worth is selling that day.
Secondary Market
Top-rated municipal bonds finished mixed on Friday, traders said, ahead of next week's $7.68 billion new issue slate.
The yield on the 10-year benchmark muni general obligation rose one basis point to 1.63% from 1.62% on Thursday while the 30-year muni yield fell two basis points to 2.43% from 2.45%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker in late trade on Friday. The yield on the two-year Treasury rose to 0.89% from 0.88% on Thursday, while the 10-year Treasury yield gained to 1.85% from 1.84% and the yield on the 30-year Treasury bond increased to 2.64% from 2.63%.
The 10-year muni to Treasury ratio was calculated at 88.3% on Friday compared to 87.9% on Thursday, while the 30-year muni to Treasury ratio stood at 92.2% versus 93.0%, according to MMD.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended May 20 were from Puerto Rico and New York issuers, according to data released by Markit.
In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 traded 44 times. In the revenue bond sector, the New York TDC LaGuardia 5s of 2046 traded 139 times. And in the taxable bond sector, the New York TDC LaGuardia 3.673s of 2030 traded 30 times, Markit said.
The Week's Most Actively Quoted Issues
California issues were among the most actively quoted names in the week ended May 20, according to Markit.
On the bid side, the California taxable 7.55s of 2039 were quoted by 12 unique dealers. On the ask side, the California taxable 7.6s of 2040 were quoted by 19 unique dealers. And among two-sided quotes, the California taxable 7.6s of 2040 were quoted by 16 dealers.
Muni Bond Funds See Inflows for 33rd Week in a Row
For the 33rd straight week, municipal bond funds reported inflows, according to Lipper data released Thursday.
Weekly reporting funds saw $1.245 billion of inflows in the week ended May 18, after inflows of $1.212 billion in the previous week, Lipper said.
The four-week moving average remained positive at $1.085 billion after being in the green at $912.861 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 $738.463 million in the latest week after inflows of $805.057 million in the previous week. Intermediate-term funds had inflows of $388.056 million after inflows of $237.402 million in the prior week.
National funds had inflows of $1.209 billion on top of inflows of $1.062 billion in the previous week. High-yield muni funds reported inflows of $372.212 million in the latest reporting week, after inflows of $309.525 million the previous week.
Exchange traded funds saw inflows of $200.238 million, after inflows of $137.910 million in the previous week.
