A December to remember: $17.4B of new muni issues on tap in record 2019 week
It’s going to be a municipal bond feast for buyers when they return from their holiday break. The biggest volume week of the year awaits, with IHS Ipreo estimating bond supply will come in at $17.4 billion in a calendar composed of $14.8 billion of negotiated deals and $2.7 billion of competitive sales.
Previously, the week of Nov. 4 was the biggest of 2019 when volume was estimated at $12.9 billion.
Munis remained attractive compared with Treasuries on Wednesday as the market began winding down in preparation for the Thanksgiving holiday — and salivating over the expected $17 billion post-holiday feast, according to a New York trader.
The holiday week was very quiet in both the primary and secondary, according to Dan Urbanowicz, director of fixed income at Ziegler Capital.
“While the bid side was strong to start the week, the market is awaiting a huge slate of new issues over the next few weeks to put cash to work and close out the year,” he said on Wednesday, ahead of the Thanksgiving holiday. While SIFMA recommended an early close for the muni market only on Friday, many market participants had already left for an early start to the holiday.
“With the new issue market offering something to choose from for all types of muni investors, I’d expect these deals to continue to be well received,” Urbanowicz added.
The ratio of municipals to Treasuries should get cheaper as year end approaches, the New York trader said. “Given the large calendar next week, there are more buyers than sellers in the market right now,” he said, adding that flows into municipal mutual funds are still arriving at a brisk pace.
“There are big flows coming in because there’s a lot of cash available,” he added.
The trader expects buyers to favor longer maturities, as 2019 comes to a close.
“Most people want to be long toward year end because they expect municipals to outperform Treasuries,” he said. “The only thing keeping a lid on the market is supply.“
The biggest issuer of the week will be the New Jersey Transportation Trust Fund Authority (Baa1/BBB+/A-/NR), which is coming to market with $2.3 billion of transportation system bonds. The deal consists of $1.689 billion of Series 2019B taxable and $634.455 million of tax-exempts. RBC Capital Markets is set to price the bonds on Thursday. Proceeds will refund outstanding debt.
The District of Columbia’s Metropolitan Washington Airports Authority (Baa2/A-/NR/NR) is coming to market with $1.7 billion of revenue and refunding bonds in two deals.
Goldman Sachs is lead underwriter on the $1.3 billion of Series 2019B subordinate lien revenue and refunding bonds for the Dulles Metrorail and capital improvement projects, while Wells Fargo Securities will price the $364 million of Series 2020A forward delivery AMT and Series 2020B non-AMT bonds.
And BofA Securities will price the Michigan Finance Authority’s (Aa3/AA-/AA-/NR) $1.119 billion of taxable hospital revenue refunding bonds for the Trinity Health Credit Group.
In the competitive arena, Nassau County, N.Y., (A2/A+/A/NR) is selling $325.94 million of notes and bonds in three offerings on Monday. The deals consist of $105.93 million of Series 2019B general improvement general obligation bonds; $120 million of Series 2019A tax anticipation notes; and $100 million of Series 2019B BANs. PFM Financial Advisors is the financial advisor; Orrick Herrington is the bond counsel. Proceeds will fund various county purposes and refinance outstanding notes.
Munis were mixed on the MBIS benchmark scale, with yields falling by one basis point in the 10-year maturity and rising by two basis points in the 30-year maturity. High-grades were also mixed, with yields on MBIS AAA scale falling by one basis point in the 10-year maturity and rising by two basis points in the 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO remained unchanged at 1.47% while the 30-year was steady at 2.06% in afternoon trading.
Stocks and Treasuries were little changed ahead of the holiday. The Dow Jones Industrial Average was up about 0.01% as the S&P 500 Index rose 0.3% while the Nasdaq gained almost 0.5% higher.
The Treasury three-month was yielding 1.611%, the two-year was yielding 1.623%, the five-year was yielding 1.621%, the 10-year was yielding 1.760% and the 30-year was yielding 2.189%.
Previous session's activity
The MSRB reported 33,788 trades Tuesday on volume of $10.66 billion. The 30-day average trade summary showed on a par amount basis of $11.15 million that customers bought $6.16 million, customers sold $2.98 million and interdealer trades totaled $2 million.
California, New York and Texas were most traded, with the Golden State taking 14.131% of the market, the Empire State taking 13.108% and the Lone Star State taking 7.885%.
The most actively traded security was the Massachusetts State Transportation Fund Series 2019A revenue 5s of 2049, which traded 13 times on volume of $35.88 million.
Bond Buyer yield indexes fall
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, fell to 3.62% from 3.63% in the week ended Nov. 27.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields decreased to 2.77% from 2.79% from the week before.
The 11-bond GO Index of higher-grade 11-year GOs dropped to 2.30% from 2.33% the prior week.
The Bond Buyer's Revenue Bond Index declined to 3.24% from 3.27% last week.
The yield on the U.S. Treasury's 10-year note dipped to 1.77% from 1.78% the week before, while the yield on the 30-year Treasury lost five basis points to 2.19% from 2.24%.
ICI: Muni funds see $2.7B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.738 billion in the week ended Nov. 20, the Investment Company Institute reported on Wednesday.
It was the 46th straight week of inflows into the tax-exempt mutual funds and followed an inflow of $1.806 billion in the previous week.
Long-term muni funds alone saw an inflow of $2.309 billion after an inflow of $1.611 billion in the previous week; ETF muni funds alone saw an inflow of $429 million after a revised inflow of $196 million in the prior week.
Taxable bond funds saw combined inflows of $10.527 billion in the latest reporting week after revised inflows of $4.875 billion in the previous week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $6.933 billion after inflows of $6.970 billion in the prior week.
The Treasury Department Wednesday auctioned $32 billion of seven-year notes, with a 1 5/8% coupon and a 1.719% high yield, a price of 99.3829185. The bid-to-cover ratio was 2.44. Tenders at the high yield were allotted 94.53%. All competitive tenders at lower yields were accepted in full. The median yield was 1.666%. The low yield was 0.880%.
Treasury also auctioned $45 billion of four-week bills at a 1.620% high yield, a price of 99.874000. The coupon equivalent was 1.649%. The bid-to-cover ratio was 2.73. Tenders at the high rate were allotted 66.40%. The median rate was 1.590%. The low rate was 1.550%.
Treasury also auctioned $35 billion of eight-week bills at a 1.570% high yield, a price of 99.755778. The coupon equivalent was 1.600%. The bid-to-cover ratio was 3.53. Tenders at the high rate were allotted 73.32%. The median rate was 1.560%. The low rate was 1.530%.
The Treasury Department said Wednesday it will auction $42 billion 91-day bills and $36 billion 182-day discount bills Monday. The 91s settle Dec. 5, and are due March 5, 2020, and the 182s settle Dec. 5, and are due June 4, 2020. Currently, there are $421.001 billion 91-days outstanding and no 182s.
Treasury also announced it will auction $26 billion 52-week bills on Dec. 3. The 52-week bills are dated Dec. 5 and due Dec. 3, 2020.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation.