Municipal bonds were little changed Tuesday as Los Angeles sold $1.45 billion of notes and the Dormitory Authority of the State of New York issuer sold $340 million of lease revenue bonds.
A continuation of the June-July reinvestment season made for brisk demand Tuesday, according to a Chicago trader.
“There are a lot of bonds leaving the market and supply doesn’t meet the demand,” the trader said. “There will be continued demand for munis, and in light of the rising interest rate environment, many people are looking inside five years for reinvestment,” he said.
He said the demand is extremely strong, especially in California and New York, two large state issuers that account for a third of all municipal issuance sold. “In general this is a great reinvestment period, and the next few weeks are going to be very beneficial for the market,” he added.
However, he pointed out, the holiday week of July 4 will bring with it a lull in issuance. “There will not be much supply, but the demand will still be there,” he said. “The ratios are not as attractive, but right now the most important thing is to reinvest.”
According to a California trader, a supply-demand imbalance strained the lackluster trading activity in the municipal market on Tuesday. “In general, the overall activity level is slow with a focus on the new-issue market and the secondary market very slim,” he said. “The activity is pretty muted, but new-issues are doing well, so there’s money on the sidelines.”
He said a one basis-point cut on the Municipal Market Data scale 2024 and beyond indicated some market weakness and that wasn’t doing much to help indecisive investors, beyond the new issue sales. “With the lack of activity, you can’t gauge exactly how investors are feeling, but the cut in the MMD is weaker, which makes investors cautious on the market,” he said.
“There is money coming due and the new issue calendar is down,” he said. “Money is starting to stack up a little bit,” especially in California, he explained, pointing to the overall substantial redemptions due marketwide on July 1.
“There is some overall strength in munis, but with Treasuries fluctuating, munis are back and forth, and investors are being cautious because they don’t know where rates are heading,” he added.
Los Angeles sold $1.54 billion of 2018 tax and revenue anticipation notes. The notes are due June 27, 2019.
The TRANs were won by 13 different groups including Goldman Sachs, Citigroup, Wells Fargo Securities, Morgan Stanley, Ramirez & Co., RBC Capital Markets, Barclays Capital, FTN Financial, UBS Financial, The Williams Capital Group, Jefferies, Stern Brothers and Bank of America Merrill Lynch.
The financial advisor is Montague DeRose & Associates; bond counsel is Squire Patton.
The TRANs are rated MIG1 by Moody’s Investors Service and SP1-plus by S&P Global Ratings.
Since 2008, the city has sold over $13 billion of notes, with the most issuance occurring in 2016 when it sold $1.45 billion of notes. It sold the least amount of notes in 2017, when it issued $949.1 million.
On Wednesday, the city will sell $321.81 million of general obligation bonds, consisting of $276.24 million of Series 2018A taxable social bonds; $34.995 million of tax-exempt Series 2018B GO refunding bonds; and $10.57 million of taxable Series 2018C GO refunding bonds. Financial advisors are Public Resources Advisory Group and Omnicap Group; bond counsel is Nixon Peabody. The bonds are rated Aa2 by Moody’s, AA by S&P and Kroll Bond Rating Agency.
In the negotiated sector, Raymond James & Associates priced for retail investors the Dormitory Authority of the State of New York’s $343.08 million of Series 2018-1 municipal health facilities improvement program lease revenue bonds, New York City issue.
The deal will be priced for institutions on Wednesday. The deal is rated Aa2 by Moody’s and AA-minus by S&P.
Barclays Capital priced the Connecticut Health and Educational Facilities Authority’s $300 million of revenue bonds for Yale University. The deal is rated triple-A by Moody’s and S&P.
Citigroup priced the Port Authority of Guam’s $54.72 million of Series 2018A&B port revenue bonds.
The deal is rated Baa2 by Moody’s and A by S&P.
Hennepin County, Minn., sold $100 million of Series 2018A general obligation bonds.
Jefferies won the bonds with a true interest cost of 3.2959%.
PFM Financial Advisors is the FA while Dorsey & Whitney is bond counsel. The deal is rated AAA by S&P and Fitch Ratings.
Since 2008, the county has sold over $1.8 billion of bonds with the most issuance occurring in 2008, when it sold $349.1 million. It did not come to market in 2015.
Tuesday’s bond sales
Click here for the L.A. note sale
Click here for the HEFA pricing
Click here for the Hennepin sale
Municipal bonds were mixed on Tuesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose less than one basis point in the one- to four-year, nine- to 13-year and 17- to 27 year maturities, fell less than a basis point in the eight-year and 28- to 30-year maturities and remained unchanged in the five- to seven-year and 14- to 16-year maturities.
High-grade munis were weaker, with yields calculated on MBIS’ AAA scale rising less than one basis point in the one- to 30-year maturities.
Municipals were weaker along Municipal Market Data’s AAA benchmark scale, which showed yields rising one basis point in both the 10-year muni general obligation and the 30-year muni maturity.
Treasury bonds were little changed as stock prices rose.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 86.5% while the 30-year muni-to-Treasury ratio stood at 98.1%, 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.
Previous session's activity
The Municipal Securities Rulemaking Board reported 35,369 trades on Monday on volume of $8.39 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 16.557% of the market, the Empire State taking 11.851% and the Lone Star State taking 10.407%.
Treasury sells $35B 4-week bills
The Treasury Department Tuesday auctioned $35 billion of four-week bills at a 1.770% high yield, a price of 99.862333.
The coupon equivalent was 1.797%. The bid-to-cover ratio was 3.05.
Tenders at the high rate were allotted 89.94%. The median rate was 1.760%. The low rate was 1.730%.
Treasury auctions $34B 2-year notes
The Treasury Department Tuesday auctioned $34 billion of two-year notes with a 2 1/2% coupon at a 2.538% yield, a price of 99.926377. The bid-to-cover ratio was 2.73.
Tenders at the high yield were allotted 89.46%. The median yield was 2.500%. The low yield was 2.420%.
Gary 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 Vanessa Kim at 212-803-8474 for more information.