Bond supply comes to 2019's strengthening muni market

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Municipal bonds have started off the year on a strong note, according to Peter Hayes, head of BlackRock’s Municipal Bonds Group.

Blackrock, which oversees over $129 billion in municipal assets, is keeping a positive view on the market after healthy returns in January were driven by favorable supply-and-demand dynamics and a stable interest rate environment.

“Municipal bonds posted strong performance in January, thanks to favorable seasonal trends and interest rates continuing to fall as investors anticipated slower global growth and a pause in the Federal Reserve’s rate hikes, while contending with a prolonged U.S. government shut down and geopolitical uncertainty, most notably in relation to China and the Brexit deal,” Hayes wrote in a monthly report released on Tuesday.
The report also noted the S&P Municipal Bond Index climbed 0.73% in January, with particularly strong returns on short- and intermediate-term bonds, the higher (AAA) and lower (BBB) ends of the quality spectrum, insured bonds, issues in high-yielding states, and the leasing, transportation and education sectors.

“As we had anticipated in our 2019 outlook, seasonal trends held true to form with a modest level of gross issuance outstripped by reinvestment activity, creating a very favorable net negative supply environment (i.e., more bonds are called, refunded or mature than new bonds issued),” he said. “Demand for the asset class was firm. Muni bond mutual fund flows rebounded from their late-2018 outflows with four consecutive weeks of inflows in January.”

Hayes added that likewise, bid-wanted activity, a burden on the market through most of last year, had moderated of late — a trend expected to continue as the bulk of the heavy selling among banks prompted by upcoming changes to tax and accounting rules should be nearly played out by this point.

“Looking forward, we maintain a positive view on the asset class,” said Hayes. “We expect supply-and-demand dynamics to remain favorable and interest rates to be relatively stable for the near term. After several years of the muni market bucking its seasonal trends, we foresee a more traditional year ahead, with coupon income likely making up a majority of total returns.”

Primary market
Collin County, Texas, competitively sold $151.285 million of Series 2019 limited tax permanent improvement limited tax general obligation bonds on Wednesday.

Bank of America Merrill Lynch won the issue with a true interest cost of 3.0244%.

The financial advisors is Hilltop Securities; the bond counsel is Bracewell.

The county last competitively sold comparable bonds on May 16, 2011, when Raymond James bought $28.49 million of Series 2011 unlimited tax road bonds with a TIC of 3.5852%.

The deal is rated triple-A by Moody’s Investors Service and S&P Global Ratings.

In the negotiated sector, BAML priced the San Francisco Bay Area Toll Authority’s $126.24 million of Series 2019S-H subordinate toll bridge revenue bonds.

The deal is rated A1 by Moody’s and AA-minus by S&P and Fitch Ratings.

On Thursday, Louisiana will competitively sell $309.845 million of Series 2019A GOs. Proceeds will be used to finance various improvement projects.

The financial advisor is Lamont Financial Services; the bond counsel are Breazeale Sachse and Butler Snow.

The deal is rated AA-minus by S&P and Fitch.

Wednesday’s bond sale

Texas
Click here for the Collin County sale

California
Click here for the Bay Area Toll pricing

Bond Buyer 30-day visible supply at $5.42B
The Bond Buyer's 30-day visible supply calendar increased $906.7 million to $5.42 billion for Wednesday. The total is comprised of $2.83 billion of competitive sales and $2.59 billion of negotiated deals.

Secondary market
Municipal bonds were mixed Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the eight- to 11-year and 17- to 28-year maturities, rose as much as a basis point in the one- to six-year, 12- to 15-year and 30-year maturities and remained unchanged in the seven-year, 16-year and 29-year maturities.

High-grade munis were also mixed according to MBIS, with muni yields falling as much as one basis point in the nine- to 11-year and 15- to 30-year maturities and rising as much as a basis point in the one- to eight-year and 12- to 14-year maturities.

Municipals were stronger on Refinitiv 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 by one basis point.

Treasury bonds were weaker as stock prices traded mixed.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 79.2% while the 30-year muni-to-Treasury ratio stood at 99.8%, 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.

COFINA bonds trading
Some of the restructured Puerto Rico Sales Tax Financing Corp. bonds were again actively trading on Wednesday.

The COFINA restructured series A1 5% bonds of July 1, 2058, dated Aug. 8, 2018, (principal amount of issuance of $3.479 billion), were trading at a high price of 98.50 cents on the dollar and a low price of 94.65 cents, compared to high and low prices of 98.284 cents and 94.959 cents on Tuesday and 98.637 cents and 95.055 cents on Friday, according to the Municipal Securities Rulemaking Board’s EMMA website.

Trading volume totaled $40.739 million in 86 trades compared to $143.318 million in 102 trades on Tuesday and $166.912 million in 49 trades last Friday, EMMA reported.

The COFINA restructured series capital appreciation 0% revenue bonds of July 1, 2033, dated Aug. 8, 2018, (principal amount of issuance of $260.418 million), were trading at a high price of 50.821 cents on the dollar and a low price of 47.203 cents, compared to high and low prices of 50.107 cents and 46.90 cents on Tuesday and to high and low prices of 49.195 cents and 47.836 cents on Friday, according to EMMA.

Trading volume totaled $47.901 million in 89 trades on Wednesday compared to $55.763 million in 43 trades Tuesday and $14.255 million in seven trades on Friday, EMMA reported.

The COFINA restructured series capital appreciation 0% bonds of July 1, 2051, dated Aug. 8, 2018, (principal amount of issuance of $631.551 million), were trading at a high price of 14.857 cents on the dollar and a low price of 13.817 cents, compared to high and low prices of 14.808 cents and 13.748 cents on Tuesday and to high and low prices of 15.23 cents and 14.529 cents on Friday, according to EMMA.

Trading volume totaled $54.384 million in 90 trades on Wednesday compared to $85.419 million in 71 trades Tuesday and $55.5 million in 16 trades on Friday, EMMA reported.

Previous session's activity
The Municipal Securities Rulemaking Board reported 40,925 trades on Tuesday on volume of $8.63 billion.

California, Texas and New York were the municipalities with the most trades, with the Golden State taking 14.313% of the market, the Lone Star State taking 11.564% and the Empire State taking 9.937%.

ICI: Muni funds see $2.99B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.985 billion in the week ended Feb. 13, the Investment Company Institute reported on Wednesday.

This followed an inflow of $2.961 billion from the tax-exempt mutual funds in the week ended Feb. 6.
Long-term muni funds alone saw an inflow of $2.928 billion after an inflow of $3.264 billion in the previous week while ETF muni funds saw an inflow of $57 million after an outflow of $303 million in the prior week.

Taxable bond funds saw combined inflows of $6.753 billion in the latest reporting week after experiencing inflows of $13.130 billion in the previous week.

ICI said the total combined estimated inflows out of all long-term mutual funds and exchange-traded funds were $8.507 billion for the week ended Feb. 13 after inflows of $17.448 billion in the prior week.

Treasury auctions floating rate notes
The Treasury Department Wednesday auctioned $18 billion of one-year 11-month floating rate notes with a high discount margin of 0.149%, at a 0.115% spread, a price of 99.934172. The bid-to-cover ratio was 2.70.

Tenders at the high margin were allotted 41.80%. The median discount margin was 0.135%. The low discount margin was 0.100%.

The index determination date is Feb. 11 and the index determination rate is 2.400%.

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. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Municipal bond funds County of Collin, TX State of Texas State of New York State of California Bay Area Toll Authority State of Louisiana
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