Municipal market participants will have very little to work with in terms of new issuance, with less than $500 million of new deals on the calendar for the second-to-last week of the year.
Volume for the week ending Dec. 23 is forecast by Ipreo to drop to $481 million, from a revised total of $4.17 billion in the previous week, according data from Thomson Reuters. The calendar is comprised of $210 million of negotiated deals and $271 million of competitive sales.
"We have seen a big drop off in supply recently, although it shouldn't be a surprise given where we are in the year," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "The market has improved since November, but there is still pressure coming from Treasuries moving up."
Heckman also said that the lack of supply will lead to improvement in the market in early 2017.
"Since the election, the market has been very volatile, but I think come late January, early February it will settle down and improve — we should also see the issuance start to pick up by then as well," he said. "The value proposition for municipals is much stronger now than it was this summer, from an absolute value."
Although the supply will be lacking for the rest of the year, Heckman has a sense that demand is going to pick up significantly.
"There is lots of cash sitting around that has got to be put back to work," he said. "We have seen a huge selling period that has been going on for 30-45 days now. I have to think that cash positions are high and people will start coming into the market in a major way."
The Commonwealth of Massachusetts is scheduled to set sell two competitive deals, totaling $188.49 million of general obligation refunding SIFMA index bonds on Tuesday. The sales are broken down into $100 million and $88.49 million parts, both rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
There are no negotiated deals on the calendar larger than $100 million; in fact, the largest negotiated deal is just $62 million.
George K. Baum and Company is slated to run the books on that transaction for the Weld County School District RE-1 Colo.'s GO bonds also on Tuesday. It is expected to have an insurance wrapped on it by Assured Guaranty and is rated Aa2 by Moody's and AA by S&P.
Mesirow Financial is expected to price Community High School District No. 28, Ill.'s $51.21 million of taxable GO limited tax school bonds and qualified school construction bonds on Tuesday. The deal is rated Aa3 by Moody's.
After those deals, the next largest deal is $24 million.
Heckman said he was skeptical of expectations that there will be a burst of U.S. infrastructure spending under the new president.
"As a market we need a reality check," he said. "There are a lot of numbers being thrown out there, but we need to understand that we might not get as much towards infrastructure as we would like [and it] might not start coming as quickly as we would like. I think there will be more lag time with this than the market is anticipating."
Secondary Market
Top-shelf municipal bonds ended unchanged on Friday, traders said.
The yield on the 10-year benchmark muni general obligation was unchanged from 2.48% on Thursday, while the yield on the 30-year was steady from 3.21%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were mixed on Friday. The yield on the two-year Treasury fell to 1.25% from 1.27% on Thursday as the 10-year Treasury yield was unchanged from 2.59%, while the yield on the 30-year Treasury bond increased to 3.18% from 3.15%.
The 10-year muni to Treasury ratio was calculated at 95.4% on Friday compared to 96.3% on Thursday while the 30-year muni to Treasury ratio stood at 100.8% versus 102.2%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Dec. 16 were from New York, Missouri and Alabama, according to Markit.
In the GO bond sector, the Suffolk County. N.Y., 2s of 2017 were traded 40 times. In the revenue bond sector, the Metropolitan St. Louis Sewer District, Mo., 5s of 2046 were traded 37 times. And in the taxable bond sector, the Alabama Economic Settlement Authority 4.263s of 2032 were traded 14 times.
Week's Most Actively Quoted Issues
Florida, New York and California names were among the most actively quoted bonds in the week ended Dec. 16,
On the bid side, the Brevard County, Fla., revenue 5s of 2029 were quoted by 81 unique dealers. On the ask side, the New York City GO 4s of 2043 were quoted by 276 unique dealers. And among two-sided quotes, the California taxable 7.5s of 2034 were quoted by 28 unique dealers.
Lipper: Muni Bond Funds Report Outflows
Municipal bond funds experienced outflows as investors continued to pull cash out of the market, according to Lipper data released late Thursday.
The weekly reporters saw $1.990 billion of outflows in the week ended Dec. 14, after outflows of $2.214 billion in the previous week.
The four-week moving average remained in the red at negative $2.129 billion after being negative $2.385 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, losing $771.676 million in the latest week after shedding $1.208 billion in the previous week. Intermediate-term funds had outflows of $798.693 million on top of outflows of $690.530 million in the prior week.
National funds had outflows of $1.414 billion after outflows of $1.750 billion in the previous week. High-yield muni funds reported outflows of $147.676 million in the latest reporting week, after outflows of $775.563 million the previous week.
Exchange traded funds saw outflows of $154.871 million, after outflows of $127.509 million in the previous week.
