Demand won’t differ, to stay strong with $7.4B in store

The primary municipal bond market will keep chugging along next week, with participants set to see more action than they did in a fast and furious past week.

Ipreo estimates volume will inch up to $7.66 billion, from the revised total of $7.42 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $3.99 billion of negotiated deals and $3.67 billion of competitive sales.

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Although the volume is close to last week's, the makeup of the calendar is different; the largest negotiated deal is under $600 million and there are more competitive sales.

However, there remain a few constants. First, there are once again around 20 sales of $100 million or greater -- and demand remains robust.

Dawn Mangerson

“The [Lipper outflows] this past week were a little odd considering the timing (lots of end of June and early July coupons being paid) and the fact that the fixed income market is not cooperating with what the Federal Reserve wants to do,” said Dawn Mangerson, managing director and senior portfolio manager at McDonnell Investment Management. “It’s interesting to see money going out but it didn’t dampen demand.”

She said that after four rate hikes or 100 basis points of policy adjustment, the 10-year Treasury is only up 10 basis points and the 10-year is only up five.

“The biggest challenge I would say is trying to figure out what will happen with rates, right now it’s a much flatter yield curve. We don’t expect a big significant increase in yields due not a lot of upward pressure.”

On Tuesday, the Dormitory Authority of the State of New York plans four separate sales totaling $1.35 billion. The state sales tax revenue bonds will have three tax-exempts and one taxable deal.

Loop Capital Markets is expected to price the New Jersey Turnpike Authority’s $597.715 million of revenue bonds and revenue taxable bonds on Tuesday. The deal is rated A2 by Moody’s Investors Service, A-plus by S&P Global Ratings and A by Fitch Ratings.

In the competitive arena, North Carolina is set to auction of $554.03 million of limited obligation refunding bonds on Thursday. The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.

Bank of America Merrill Lynch is scheduled to price the Georgia State Road Tollway Authority’s $353 million of federal highway grant anticipation and federal highway gran reimbursement revenue refunding bonds on Wednesday.

Morgan Stanley is expected to price the San Diego Regional Airport Authority’s $310.425 million of subordinate airport revenue bonds featuring both alternative minimum tax bonds and non-AMT bonds on Tuesday.

Secondary market
Municipal bond ended stronger on Friday. The yield on the 10-year benchmark muni general obligation fell three basis points to 2.00% from 2.03% on Thursday, while the 30-year GO yield declined four basis points to 2.79% from 2.83%, according to the final read of Municipal Market Data's triple-A scale.

Treasuries were also stronger. The yield on the two-year Treasury declined to 1.34% from 1.36% on Thursday, the 10-year Treasury yield dropped to 2.32% from 2.34% and the yield on the 30-year Treasury bond decreased to 2.91% from 2.92%.

The 10-year muni to Treasury ratio was calculated at 86.2% on Friday, compared with 86.5% on Thursday, while the 30-year muni to Treasury ratio stood at 95.9% versus 96.9%, according to MMD.

Illinois spreads stable
Illinois’ general obligation trading spreads didn’t move on Thursday, a day after S&P Global Ratings took the state’s BBB-minus rating off credit watch and gave it a stable outlook, said MMD strategist Daniel Berger.

“The market had already anticipated this positive rating development and there were no further movements in spreads,” Berger said.

The state’s 10-year debt held steady at a 205 basis point spread to the MMD’s top benchmark, where it’s been all week. The state has seen its spreads narrow between 70 and 80 basis points over the past two weeks due to the legislature’s passage of a fiscal 2018 budget package and its override of Gov. Bruce Rauner’s veto, Berger said.

The state could still see its rating fall to junk once Moody’s Investors Service completes its review of the budget.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended July 14 were from Illinois and New York issuers, according to Markit.

In the GO bond sector, the Chicago Board of Education 7s of 2046 were traded 73 times. In the revenue bond sector, the New York City TFA 4s of 2036 were traded 106 times. And in the taxable bond sector, the Illinois 5.1s of 2033 were traded 56 times.

Week's actively quoted issues
Illinois and New York names were among the most actively quoted bonds in the week ended July 15, according to Markit.

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On the bid side, the Illinois taxable 5.1s of 2033 were quoted by 68 unique dealers. On the ask side, the DASNY revenue 4s of 2034 were quoted by 134 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 49 unique dealers.

Lipper: Muni bond funds see outflows
Investors in municipal bond funds again took cash out of the funds in the latest week, according to Lipper data. The weekly reporters saw $172.555 million of outflows in the week of July 12, after outflows of $458.306 million in the previous week.

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The four-week moving average was negative at $256.274 million, after being in the red at $114.416 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 inflows of $77.841 million in the latest week after outflows of $305.061 million in the previous week. Intermediate-term funds had outflows of $145.902 million after outflows of $106.962 million in the prior week.

National funds had outflows of $177.995 million after outflows of $402.531 million in the previous week. High-yield muni funds reported inflows of $75.010 million in the latest reporting week, after outflows of $208.683 million the previous week.

Exchange traded funds saw outflows of $9.757 million, after inflows of $2.624 million in the previous week.

Yvette Shields contributed to this report.

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Sell side Primary bond market Secondary bond market Municipal bond funds State of Illinois New York State Dormitory Authority New Jersey Turnpike Authority
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