Top-rated municipal bonds finished mostly steady on Monday, traders said, as the market got set for more volume to come its way this week.
The yield on the 10-year benchmark muni general obligation was steady from 1.57% on Friday, while the 30-year muni yield was flat at 2.49%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger on Monday. The yield on the two-year Treasury dropped to 0.71% from 0.73% on Friday, while the 10-year Treasury yield declined to 1.76% from 1.78% and the yield on the 30-year Treasury bond decreased to 2.62% from 2.63%.
The 10-year muni to Treasury ratio was calculated at 89.4% on Monday compared with 88.4% on Friday, while the 30-year muni to Treasury ratio stood at 95.1% versus 94.7%, according to MMD.
Primary Market
Volume for the week is estimated at $7.88 billion, comprised of $6.02 billion of negotiated deals and $1.86 billion of competitive sales.
"A lack of supply relative to the demand is still exhibiting itself in the muni market. Fair priced deals are many times oversubscribed," said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. "The Puerto Rico payment problems seem to be focused only on Puerto Rico not the general overall market. There are enough high-credit quality bonds to be found. We expect supply to pick up in the second half and into 2017."
Market action got underway on Monday as Bank of America Merrill Lynch priced and repriced Wake County, N.C.'s $190.51 million of Series 2016A limited obligation refunding bonds.
The issue was repriced to yield from 0.90% with a 4% coupon in 2019 to 3% at par in 2036.
The deal is rated Aa1 by Moody's Investors Service, and AA-plus by Standard & Poor's and Fitch Ratings and carries a stable outlook from all three agencies.
On Tuesday, the city and county of San Francisco's Public Utilities Commission will competitively sell more than $308 million of bonds in two separate offerings. The sales consist of $241 million of Series 2016A wastewater revenue green bonds and $68 million of Series 2016B wastewater revenue bonds. Both deals are rated Aa3 by Moody's and AA by S&P.
And the California Department of Water Resources is competitively selling $108 million of Series AV Central Valley Project water system revenue bonds on Tuesday. The deal is rated Aa1 by Moody's and triple-A by S&P.
In the negotiated sector on Tuesday, Ramirez is expected to price Austin's $252 million of Series 2016 water and wastewater system revenue refunding bonds. The deal is rated Aa2 by Moody's, AA by S&P and AA-minus by Fitch.
On Wednesday, the Alameda Corridor Transportation Authority, Calif., will be coming to market with the biggest deal of the week. BAML is set to price the authority's $662 million of Series 2016 A&B tax-exempt subordinate and second subordinate lien revenue refunding bonds.
The Series A bonds are rated Baa2 by Moody's and BBB-plus by S& P and Fitch. The Series B bonds are rated Baa2 by Moody's and BBB by S&P and Fitch.
Also from California, Loop Capital Markets is expected to price the Los Angeles International Airport's $293 million of Series 2016A subordinate revenue bonds on Wednesday. The deal, which is subject to the alternative minimum tax, is rated A1 by Moody's and AA-minus by S&P and Fitch.
Morgan Stanley is set to price the state of Oregon's $306 million of Series 2016 D, E, F, G and H Article XI-M seismic projects and Article XI-Q state projects general obligation bonds on Wednesday.
In the Midwest, Chicago is coming to market with a $546 million sale of tax-exempt and taxable and second lien water revenue bonds. PNC Capital Markets is expected to price the deal on Wednesday. The issue is rated AA by Kroll Bond Rating Agency.
In the Southwest, JPMorgan Securities is set to price the Central Texas Regional Mobility Authority's $369 million of Series 2016 senior lien revenue refunding bonds on Thursday. The issue is rated Baa2 by Moody's and BBB-plus by S&P.
Prior Week's Actively Traded Issues
Revenue bonds comprised 55.33% of new issuance in the week ended May 6, up from 52.11% in the previous week, according to data released by
General obligation bonds comprised 38.75% of total issuance, down from 40.46%, while taxable bonds made up 5.92%, down from 7.43%.
Some of the most actively traded issues by type last week were from Puerto Rico, Texas and California issuers.
In the GO bond sector, the Puerto Rico 8s of 2035 traded 44 times. In the revenue bond sector, the North Texas Tollway Authority 5s of 2039 traded 75 times. And in the taxable bond sector, the California 7.55s of 2039 traded 17 times, Markit said.
Janney: New Money Borrowing Steady, Below Highs
While the pace of new money issuance for capital projects has been steady so far this year, it remains well below pre-recession levels, according to a market note released by Janney on Monday.
"Average annual new money issuance in the five years through 2010 was $282 billion, driven to some extent by the Build America Bond component of the 2009 stimulus legislation," Janney Municipal Strategist Alan Schankel wrote. "The annual average new money issuance pace dropped to $182 billion in years 2011- 2015, as state and local governments cycled through several years of relative austerity."
He said that infrastructure investment was often put off due to falling budget revenue and rising pension funding requirements.
"Strong demand and flat supply have characterized the municipal market so far this year," Schankel wrote. "We see little indication that this will change."
