Amid volatility, munis hold firm

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Municipal bonds were mostly stronger on Wednesday along with Treasuries as continued volatility in the stock market promoted a better safe than sorry attitude among investors.

The tale of the muni market in 2018 was one of reduced issuance and shifting demand, according to Janney analysts.

“Following a January selloff, tax-free yields occupied a tight 15-basis-point trading range (2.41%-2.56%) for much of the year (February-August),” Janney said in a Wednesday market comment. “A post Labor Day selloff was reversed following the midterm election, pulling muni performance for the year into positive territory. Based on Bloomberg/Barclays Index data, the muni sector finished 2018 with a 1.28% return, the highest among major fixed income sectors.”

Janney noted a shift in demand for tax-free bonds among banks, since under the 2017 tax legislation the exemption offers less value at the lower 21% corporate tax rate. “After decades of steady increases, bank holdings of tax free bonds fell by 6.9% during the first three quarters of 2018, with insurance companies and mutual funds absorbing some of the slack (+2.3% and +2.0%, respectively),” Janney said.

Secondary market
Municipal bonds were stronger on Wednesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points in the one- to 30-year maturities.

High-grade munis were mostly stronger, with yields calculated on MBIS' AAA scale falling as much as eight basis points in the one- to five-year maturities and dropping as much as one basis point in the six- to 26-year maturities and rising less than a basis point in the 27- to 30-year maturities.

Municipals were stronger on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the 30-year muni maturity falling between two and four basis points.

Treasury bonds were stronger amid continuing stock market volatility. The Treasury 30-year was yielding 2.997%, the 10-year yield stood at 2.668%, the five-year was at 2.503%, the two-year was at 2.492% while the Treasury three-month bill stood at 2.451%.

On Monday, the 10-year muni-to-Treasury ratio was calculated at 85.1% while the 30-year muni-to-Treasury ratio stood at 100.7%, 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.

Primary market
This week’s calendar is mostly empty, with only about $18 million of deals going up for sale. The calendar is composed of $6.4 million of negotiated deals and $11.3 million of competitive sales.

The biggest deal of the week is a note sale, with Jersey City selling $83.4 million bond anticipation notes on Thursday.

Next week’s slate is building, with Bank of America Merrill Lynch set to priced Massachusetts' $967 million of tax-exempt and taxable general obligation and GO refunding bonds in the negotiated sector.

Since 2009, Massachusetts has sold over $29 billion of bonds, with the most issuance occurring in 2016 when it offered $4.83 billion of securities. It sold the least amount in 2011 and 2012 when it issued $1.96 billion of bonds in each of those years.
Wells Fargo Securities is expected to price the New Jersey Transportation Trust Fund Authority’s $500 million of transportation program bonds and the state of Mississippi’s $279 million of gaming tax revenue bonds.

Morgan Stanley is set to price Texas A&M University’s $220 million of tax-exempt and taxable revenue financing system bonds.

Bond Buyer 30-day visible supply at $5.09B
The Bond Buyer's 30-day visible supply calendar increased $69.5 million to $5.09 billion for Wednesday. The total is comprised of $1.98 billion of competitive sales and $3.11 billion of negotiated deals.

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, or contact Ziad Saba at 212-803-6079 for more information.

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Secondary bond market Primary bond market City of Jersey City, NJ Texas A&M University System Board of Regents New Jersey Transportation Trust Fund Authority Commonwealth of Massachusetts State of Texas