Municipal bond traders are set to see more supply hit the market on Tuesday, topped by the institutional pricings of the Connecticut and San Jose deals.
Secondary Market
U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year rose to 1.26% from 1.25% on Monday, while the 10-year Treasury yield fell to 2.36% from 2.37%, and the yield on the 30-year Treasury bond decreased to 2.97% from 2.98%.
Top-rated municipal bonds finished stronger on Monday. The yield on the 10-year benchmark muni general obligation declined three basis points to 2.25% from 2.28% on Friday, while the 30-year GO yield dropped four basis points to 3.03% from 3.07%, according to the final read of Municipal Market Data's triple-A scale.
On Monday, the 10-year muni to Treasury ratio was calculated at 94.9% compared with 95.3% on Friday, while the 30-year muni to Treasury ratio stood at 101.7%, versus 102.4%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 38,198 trades on Monday on volume of $7.8 billion.
Primary Market
Citigroup is set to price Connecticut's $750 million of general obligation and GO refunding bonds for institutions on Tuesday after holding a one-day retail order period.
On Monday, the $550 million of Series 2017A GOs were priced for retail to yield from 1.63% with a 3% coupon in half of a 2020 maturity to 3.60% with a 5% coupon in 2035; a 2037 maturity was priced at par to yield 4%. The 2018 and 2019 maturities were offered as sealed bids. No retail orders were taken in the other halves of the 2020-2027 maturities.
The $200 million of Series 2017B refunding GOs were priced for retail as 5s to yield from 1.63% in 2020 to 3.09% in 2028. The 2018 and 2019 maturities were offered as sealed bids.
The deal is rated Aa3 by Moody's Investors Service and AA-minus by S&P Global Ratings, Fitch Ratings and Kroll Bond Rating Agency.
Citi is also set to price San Jose, Calif.'s $630.47 million of airport revenue refunding bonds for institutions on Tuesday after holding a one-day retail order period on Monday.
The $478.17 million of Series 2017A bonds subject to the alternative minimum tax were priced for retail as 5s to yield from 1.30% in 2019 to 3.81% in 2037; a 2041 maturity was priced as 5s to yield 3.86% and a 2042 maturity was priced as 4s to yield 4.17%. No retail orders were taken in the 2047 maturity. A 2018 maturity was offered as a sealed bid.
The $152.3 million of Series 2017B non-AMT bonds were priced for retail to yield from 1.20% with a 3% coupon in 2019 to 3.51% with a 5% coupon in 2037; a 2041 maturity was priced as 5s to yield 3.56%, a 2042 maturity was priced as 4s to yield 4.04%. No retail orders were taken in the 2047 maturity. A 2018 maturity was offered as a sealed bid.
The deal is rated A2 by Moody's and A-minus by S&P and Fitch except for the Series 2017A $28.35 million 2042 maturity which is insured by Build America Mutual and rated AA by S&P.
Since 2007, San Jose has sold about $2.4 billion of bonds, with the most issuance occurring in 2007 when it offered $815 million of debt. The city did not come to market in 2012, 2013 or 2016. Tuesday's sale marks the second highest yearly issuance in the past 10 years.
On Tuesday, RBC Capital Markets is expected to price the Glendale Community College District of Los Angeles County, Calif.'s $122 million of Series A election of 2016 GOs. The deal is rated Aa2 by Moody's and AA-minus by S&P.
RBC is also set to price the New York Metropolitan Transportation Authority's $100 million of variable-rate refunding bonds, Subseries 2002D-2A Libor floating-rate tender notes on Tuesday. The deal is rated A1 by Moody's and AA-minus by S&P.
In the competitive arena on Tuesday, Guilford County, N.C., is selling $196.27 million of bonds in two separate sales consisting of $169.07 million of Series 2017B public improvement GOs and $27.2 million of Series 2017A public improvement GOs.
The deals are rated triple-A by Moody's, S&P and Fitch.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $106.6 million to $11.05 billion on Tuesday. The total is comprised of $3.19 billion of competitive sales and $7.86 billion of negotiated deals.
SPDJI: Foreign Interest in U.S. Munis Grows
Overseas investors have been showing a greater interest in U.S. municipal bonds, according to J.R. Rieger, global head of fixed income indices at S&P Dow Jones Indices.
Foreign investor holdings of munis jumped to $106 billion as of year-end 2016, according to the Federal Reserve, Rieger said in a Monday market comment.
Rieger listed several reasons why foreign investors may find munis attractive, such as the belief in the potential of a stronger U.S. dollar.
"U.S. municipal bonds, whether tax-free or taxable, offer incremental yield relative to the negative or near zero yield environments seen in the Eurozone and Japan," he wrote, adding that investors like "the relatively high quality of investment-grade municipal bonds to other asset classes such as U.S. corporate bonds and, in some cases, sovereign bonds."
He also cited the historically low default rate of investment-grade municipal bonds and that munis are shorter duration than U.S. investment-grade corporate bonds.
He said the investment-grade munis tracked in the S&P
And he noted the relatively lower volatility of muni bonds as compared to U.S. corporates.
"Due to the large number of U.S. municipal bond issuers and the sheer number of municipal bonds outstanding, the depth of liquidity for U.S. municipal bonds has been a factor impacting the market for decades," Rieger wrote. "The lower depth of liquidity for U.S. municipal bonds helps keep yields higher, as a liquidity 'premium' is demanded by the market in return for this risk."
