Front end of the muni curve sees strength

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The muni market saw the last issuance of the week come and go and bonds on the front end of the curve are selling quicker than the bonds on the long-end.

Primary market
Barclays priced New Jersey Economic Development Authority’s (Baa1/BBB+/A-) $499.645 million of NJ Transit transportation project bonds.

Bank of America Securities priced the City of San Antonio, Texas’ (Aa2/AA/AA) $278.595 million of water system junior lien revenue and refunding bonds.

“The SA did very well, especially in the front end,” said one Texas trader. “The issuance overall is doing great.”

“The Muni/Treasury ratios are not holding buyers back despite being rich,” the Texas trader said. “It seems an overall trend is forming though, which is strong demand in first half of the curve with slower participation (one to three time oversubscribed) in the back half. Muni fundamentals are rich, demand is strong.”

The Metropolitan Transportation Authority (A1/A/AA-/AA+) sold a total of $939.555 million of transportation revenue climate certified green bonds in three separate sales on Thursday.

The first tranche for $407.605 million was won by BofA Securities with a true interest cost of 3.4377%. The 2041 through 2044 maturities totaling $149.430 are insured by Assured Guaranty and carry a rating of AA by S&P.

BofA Securities also bought the second tranche for $279.235 million with a TIC of 3.4652%. The 2050 and 2054 maturities totaling $111.865 million are insured by Assured Guaranty and are rated AA by S&P.

JP Morgan won the third and final tranche for $240.705 million with a TIC of 1.4041%.

Omaha Public School District No. 728, Minnesota sold $113 million of GO school building bonds. JP Morgan won with a TIC of 2.6506%.

“It is nice to be busy and have so much primary activity in January for a change,” said one New York trader, who noted that January issuance is typically lackluster. “Going back the past 10 years, there has only been two Januarys with greater than $30 billion of issuance. We could make it three if things stay this way and I think they will.”

An early look at the calendar indicates that next week we will see more supply than what we saw this week. The Windy City will price two deals next week: The Chicago Sales Tax Securitization Corp.’s $900 million of tax-exempt and taxable bonds and the City of Chicago’s $346 million of general obligation refunding bonds.

Bond Buyer indexes drop
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, fell to 3.59% from 3.63% the week before.

The Bond Buyer's 20-bond GO Index of 20-year general obligation yields dropped 10 basis points to 2.63% from 2.73% the week before.

The 11-bond GO Index of higher-grade 11-year GOs fell 10 basis points to 2.16% from 2.26% the prior week.

The Bond Buyer's Revenue Bond Index was down 21 basis points to 2.99% from 3.20% from the previous week.

The yield on the U.S. Treasury's 10-year note was slightly lower to 1.85% from 1.88% the week before, while the yield on the 30-year Treasury slipped to 2.32% from 2.34%.

Secondary market
Munis were mixed on the MBIS benchmark scale, with yields falling less than a basis points in the 10-year maturity and rising by less than a basis point in the 30-year. High-grades were also mixed, with yields on MBIS AAA scale decreasing by no more than one basis points in the 10-year and increasing by two basis points in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GO rose by one basis point to 1.35% and 1.98%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 71.9% while the 30-year muni-to-Treasury ratio stood at 84.7%, according to MMD.

Stocks were in the green as Treasuries yields moved lower. The Treasury three-month was yielding 1.538%, the two-year was yielding 1.577%, the five-year was yielding 1.650%, the 10-year was yielding 1.860% and the 30-year was yielding 2.335%.

The Dow Jones was up 0.66%, The S&P 500 increased by about 0.60% and the Nasdaq was up 0.67%.

“The ICE muni yield curve is about one basis point higher as it is taking its lead from Treasuries. Taxables are up two basis points,” ICE Data Service said in a Thursday market comment. “Tobaccos are unchanged to up one basis point, but high-yield is unchanged. Puerto Rico is higher led by the PREPA power revenue bonds that are up 1 point.”
Muni money market funds see big inflow
Tax-exempt municipal money market fund assets increased by $3.55 billion, raising their total net assets to $140.67 billion in the week ended Jan. 6, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for the 187 tax-free and municipal money-market funds decreased to 0.94% from 1.07% in the previous week.
Unending demand for firm munis
“Munis more or less marched to their own drummer as investors kept up their appetite for the asset class, particularly taxables,” Jeffrey Lipton, managing director of municipal credit at Oppenheimer & Co.

Municipals held a firmer tone against a backdrop of limited availability of secondary product this week as Treasury securities reflected more heavily upon the easing of geopolitical tensions following President Trump’s benign retaliatory attack from Iran upon a U.S. military base located in Iraq.

”Market technicals have led munis to again outperform Treasuries throughout the trading session,” Lipton said.

The New Jersey general obligation offering this week was welcomed by the market for its combination of tax-exempt and taxable paper.

“If anyone was looking for a meaningful risk premium given the state's historical credit pressure, none was to be found as retail was happy to acquire the rarely issued structure,” Lipton said.

He said spreads came tight to Refinitiv Municipal Market Data triple A benchmarks, which reflects the desirability of home-state exemption in light of limitations on SALT deductibility and New Jersey's standing as a high-tax state.

Meanwhile, others said rich levels of municipals to Treasuries surfaced for the first time since the second quarter of 2019 — and the New Jersey deal continues to impact the market.

“Ratios to U.S. Treasuries haven't been this low since May,” Peter Delahunt, managing director of municipals at Raymond James & Associates, said.

“This is also reflected in the tightening of both credit and coupon spreads,” he added.

”The imbalance of excess demand versus a limited supply of tax-exempt debt is the main culprit driving the performance in our market,” Delahunt said.

Deals like New Jersey are helping combat the otherwise challenging refunding climate.

“The New Jersey GO is a credit that hasn’t come to market for a few years as compared to the various state appropriated credits,” Delahunt said. “The limited issuance of the GO credit versus the ample float of appropriation debt led to pricing levels greater than the typical spread between these credits.”

Previous session's activity
The MSRB reported 35,222 trades Wednesday on volume of $12.361 billion. The 30-day average trade summary showed on a par amount basis of $10.44 million that customers bought $5.46 million, customers sold $3.19 million and interdealer trades totaled $1.78 million.

California, New York and Texas were most traded, with the Golden State taking 17.276% of the market, the Golden State taking 14.6% and the Lone Star State taking 10.908%.

The most actively traded security was the GDB debt recovery Authority if the Commonwealth of Puerto Rico taxable 7.5s of 2040, which traded 49 times on volume of $50.203 million.

Treasury auctions
The Treasury Department Thursday auctioned $16 billion of 29-year 10-month bonds with a 2 3/8% coupon at a 2.341% high yield, a price of 100.723975. The bid-to-cover ratio was 2.54. Tenders at the high yield were allotted 9.90%. The median yield was 2.310%. The low yield was 0.880%.

Treasury also auctioned $35 billion of four-week bills at a 1.490% high yield, a price of 99.884111. The coupon equivalent was 1.517%. The bid-to-cover ratio was 3.38. Tenders at the high rate were allotted 24.92%. The median rate was 1.480%. The low rate was 1.450%.

Treasury also auctioned $35 billion of eight-week bills at a 1.515% high yield, a price of 99.764333. The coupon equivalent was 1.544%. The bid-to-cover ratio was 2.99. Tenders at the high rate were allotted 59.55%. The median rate was 1.495%. The low rate was 1.465%.

Treasury bill announcement
The Treasury Department said Thursday it will auction $42 billion 91-day bills and $36 billion 182-day discount bills Monday. The 91s settle Jan. 16, and are due April 16, and the 182s settle Jan. 16, and are due July 16.

Currently, there are $41.998 billion 91-days outstanding and $25.997 billion 182s.

Gary E. 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.

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