The municipal bond market gets back in the saddle after a holiday shortened week as traders get set to welcome in over $6 billion of new volume.
Ipreo forecasts weekly bond volume will jump to $6.3 billion from a revised total of $2.3 billion in the past week, according to updated data from Thomson Reuters. The calendar is composed of $4.4 billion of negotiated deals and $1.9 billion of competitive sales.
“It’s nice to see more medium sized deals [as opposed to two giant deals, making up most of the calendar – as was the case last week], as it gives you more chances to get bonds, as well as more variety for your portfolio,” said Dawn Mangerson, senior portfolio manager at McDonnell Investment Management. “There will be no let-up in terms of demand. People have a significant amount of money in hand and when you are only getting 20-30% of your allocations, it is going to take longer to spend that money.”
Jim Grabovac, senior portfolio manager at McDonnell, said that the muni curve and rates have been "bound" in a certain range. The Treasury curve has continued to flatten, making the muni curve steeper by comparison. “Because of this, short-term valuations are rich for munis and the long-end is cheap,” he said. “It has been driven by tax legislation, which caused a lack of available paper on the short-end.”
Grabovac said he'll keep an eye on the Federal Reserve and how high the Federal Open Market Committee raises rates from now until the end of 2019. The panel next meets on Sept. 19-20.
“The Fed has expectations of five additional hikes through the end of 2019 [not including the expected Sept. hike] and the market is saying they think there is only a 28% chance of four hikes occurring in that time frame,” he said. “The recent hikes have impacted emerging markets and if the Fed keeps up with the aggressive tightening, it will manifest to other markets.”
A New York trader said the new calendar should soak up some of the cash on the sidelines and keep investors yearning for more supply. “Some people feel a larger calendar creates more activity and more confidence,” he said on Friday afternoon.
He pointed to the market’s first full week back to business after being in a Labor Day and summer vacation mode.
“[This week is ] when we will see how the market’s going to handle new deals overall,” he said. The upcoming week "should bring some good support for a good mixture of names, and it will again be a manageable calendar, so that won’t weigh on the market.”
Primary market
You can bet the market will be taking a good look at the biggest deal of the week — the Las Vegas Convention and Visitors Authority’s $500 million offering.
RBC Capital Markets is set to price the Series 2018B convention center expansion revenue bonds on Thursday.
Bond proceeds from will partly fund the authority's $860 million
JNA Consulting Group and Montague DeRose are co-financial advisors while Stradling is bond counsel.
The deal is rated Aa3 by Moody’s Investors Service and A-plus by S&P Global Ratings.
RBC is also expected to price the Poudre School District R-1 of Larimer County Colo.’s $375 million of Series 2018 GOs on Wednesday. The deal is rated Aa2 by Moody’s.
JPMorgan Securities is set to price Indianapolis’ 358 million of Series 2018A water system first lien refunding revenue bonds on Wednesday. The deal is rated Aa3 by Moody’s, AA by S&P and A-plus by Fitch Ratings.
JPMorgan is also expected to price the Sarasota County [Florida] Public Hospital District's $350 million of Series 2018 fixed-rate hospital revenue bonds for the Sarasota Memorial Hospital on Wednesday. The deal is rated A1 by Moody’s and AA-minus by Fitch.
In the competitive arena, the Shoreline School District No. 412, Wash., is selling $206.81 million of unlimited tax general obligation bonds under the Washington state school district credit enhancement program on Tuesday. The deal is rated AA-plus by S&P.
Bond Buyer 30-day visible supply at $10.28B
The Bond Buyer's 30-day visible supply calendar increased $704.6 million to $10.28 billion for Friday. The total is comprised of $3.14 billion of competitive sales and $7.14 billion of negotiated deals.
Week's actively traded issues
Some of the most actively traded munis by type in the week ended Sept. 7 were from Massachusetts, Texas and Illinois issuers, according to
In the GO bond sector, the Massachusetts 4s of 2019 traded 66 times. In the revenue bond sector, the Texas 4s of 2019 traded 170 times. And in the taxable bond sector, the Chicago 5.432s of 2042 traded 12 times.
Week's actively quoted issues
Puerto Rico, New Jersey and California names were among the most actively quoted bonds in the week ended Sept. 7, according to Markit.
On the bid side, the Puerto Rico Aqueduct and Sewer Authority revenue 5.25s of 2042 were quoted by 106 unique dealers. On the ask side, the New Jersey Health Care Facilities Finance Authority revenue 5s of 2043 were quoted by 302 dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 21 dealers.
Secondary market
Municipal bonds were weaker on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose six basis points in the one-year and by four basis points in the two-year and as much as one basis point in the three- to 30-year maturities.
High-grade munis were also weaker, with yields calculated on MBIS' AAA scale rising six basis points in the one-year, three basis points in the two-year, two basis points in the three-year and as much as one basis point in the four- to 30-year maturities.
Municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising two basis points while the yield on 30-year muni maturity increased four basis points.
Treasury bonds were weaker as stock prices traded lower.
On Friday, the 10-year muni-to-Treasury ratio was calculated at 84.6% while the 30-year muni-to-Treasury ratio stood at 99.9%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Municipals opened on Friday with a continued soft tone amid a manageable calendar following some Treasury weakness and the release of unemployment numbers. August jobs data rebounded at 201,000, which was up from July’s 147,000 -- and beyond economists’ expectations of 191,000.
“Municipals definitely had a soft tone all week and that continues today,” a New York trader said Friday morning.
One of the trader’s concerns was the growing bid wanted lists in the secondary market and how they may impact the market. “There have been a lot of bonds out for the bid the last couple of days,” he explained. “The market is hanging in, but there’s more of a softer bias.”
The week’s larger new deals, such as the negotiated New York City Transitional Finance Authority offering, “did reasonably well.” The California general obligation offering, he noted, likely did well, but due to it being a competitive deal with such a large winning syndicate of different dealers, was hard to gauge only a day after the deal was reoffered.
Previous session's activity
The Municipal Securities Rulemaking Board reported 40,749 trades on Thursday on volume of $11.56 billion.
California, Texas and New York were the municipalities with the most trades, with Golden State taking 16.014% of the market, the Lone Star State taking 12.542% and the Empire State taking 8.993%.
Lipper: Muni bond funds saw outflows
Investors in municipal bond funds turned cautious and took cash out of the funds during the latest reporting week, according to Lipper data released on Thursday.
The weekly reporters saw $181.441 million of outflows in the week ended Sept. 5, after inflows of $212.052 million in the previous week.
Exchange traded funds reported outflows of $43.094 million, after inflows of $57.435 million in the previous week. Ex-ETFs, muni funds saw $138.343 million of outflows, after inflows of $154.617 million in the previous week.
The four-week moving average remained positive at $215.252 million, after being in the green at $416.251 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 had outflows of $127.634 million in the latest week after inflows of $368.851 million in the previous week. Intermediate-term funds had inflows of $4.958 million after inflows of $97.445 million in the prior week.
National funds had outflows of $124.108 million after inflows of $194.565 million in the previous week. High-yield muni funds reported inflows of $15.431 million in the latest week, after inflows of $222.454 million the previous week.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
