Far West focus: Muni market attention turns to big Calif., Ore. deals in $7.4B slate

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When market participants return to work after the long holiday weekend, they will see a chunky slate of supply waiting for them as issuers take advantage of low rates and a stable marketplace.

Offerings from issuers in California, Oregon and Washington state top the calendar. IHS Ipreo estimates weekly volume at $7.38 billion, consisting of $6.20 billion of negotiated deals and $1.18 billion of competitive sales.

In secondary trading, municipals finished out the week little changed on triple-A benchmarks as the market closed early ahead of the holiday. Yields have essentially remained flat since mid-June as the market has digested new issues well and investors are starved for paper, especially tax-exempts.

Traders and analysts noted the holiday-shortened week has had munis in a holding pattern.

"Very attractive muni-U.S. Treasury ratios, little to no supply, and seven weeks of inflows are underpinning solid support despite many participants reporting that they don’t 'love' current yields and are hoping things back up a bit before becoming more active," said Greg Saulnier, managing analyst, municipal bonds, at Refinitiv TM3/MMD.

"Month/quarter-end amid a holiday-shortened week is undoubtedly having an impact on overall flows, but primary deals continue to be well received so I think munis are just circling the wagons until traders return post holiday."

Primary market
The Regents of the University of California (Aa2/AA/AA/NR) is heading to market with a $2.32 billion tax-exempt and taxable revenue bond deal.

JPMorgan Securities is expected to price the $790.45 million of exempt Series BE, $328.305 million of taxable Series BF and $1.2 billion of taxable Series BG on Thursday.

Proceeds of the Series BE and Series BF bonds will be used to finance or refinance certain projects of the university including refunding bonds; proceeds of the BG bonds will be used for the university’s working capital purposes.

The City of Los Angeles, Calif., (MIG1/SP1+/NR/NR) is coming to market with a $1.78 billion note deal.

JPMorgan is set to price the tax and revenue anticipation notes on Tuesday.

Proceeds will be used to provide effective cash flow management for the city’s general fund revenues and expenditures in fiscal 2020-2021 and to make the city’s annual contribution to the fire and police departments’ pension plan and to the city employees’ retirement system.

Additionally, the Asante Health System Obligated Group’s (NR/A+/A+/NR), $450 million of revenue and refunding bonds for the Medford Hospital Facilities Authority, Ore., is set to be priced by JPMorgan on Tuesday

RBC Capital Markets is expected to price the Tacoma School District Number 10, Wash.’s (Aaa/AA+//) $432 million of taxable GO refunding bonds on Wednesday. The deal is backed by the Washington state credit enhancement program.

Also on tap is a $353.895 million general obligation taxable bond deal from the state of Oregon (Aa1/AA+/AA+/NR).

Citigroup is set to price the Series 2020-O and Series 2020–Q taxable GO refunding bonds on Wednesday.

What does the heavy June new issue bode for July?
June’s $46 billion supply surge would appear on the surface to create some demand delay, but most issuance was well distributed with slower turnover in select structures (intermediate 2% coupons), said Kim Olsan, senior vice president at FHN Financial. She compared previous heavier June issuance since the year 2000.

· June 2003: $48 billion in supply hit the market but the summer period was marked a large sell-off that took the 10-year UST up 130 basis points between mid-June and the end of July. The 10-year AAA benchmark corrected over 80 basis points in that period, but by years end finished near where it was at the end of Q2.

· June 2007: the month had $47 billion price in new issue and by the end of July intermediate yields had fallen 10 basis points. The following year saw similar results where June 2008’s issuance hit $50 billion and yields rallied 11 basis points a month later.

· June 2016: Supply totaled $47 billion while rates trended to then-historical lows (10-year AAA hit 1.29%) into July. As Q3 progressed that year, election-related effects were becoming more prominent. By the end of September 2016, the 10-year AAA had traded to the 1.50% range.

Turning to this year, heavy redemptions created a strong seller’s market, but pandemic impacts are creating an ongoing bifurcation of flows where GOs and essential service bonds are drawing more demand and revenue-challenged sectors such as healthcare and transportation are seeing less representation.

"It is expected redemptions will create organic inquiry, but the upcoming election period cannot be ignored as another influencing factor," she said.

Money market muni funds fall $1.43B
Tax-exempt municipal money market fund assets fell $1.43 billion, bringing total net assets to $129.79 billion in the week ended June 29, according to the Money Fund Report, a publication of Informa Financial Intelligence.

The average seven-day simple yield for the 187 tax-free and municipal money-market funds was unchanged at 0.03%.

Taxable money-fund assets decreased $49.12 billion in the week ended June 30, bringing total net assets to $4.443 trillion.

The average, seven-day simple yield for the 792 taxable reporting funds sipped to 0.06% from 0.07% in the prior week.

Overall, the combined total net assets of the 979 reporting money funds fell $50.55 million to $4.573 trillion in the week ended June 30.

Secondary market
Some notable Thursday trades:

Los Angeles Community College District 3s of 2023 traded at 0.25%. Yale 5s of 2029 at 0.81%-0.80%. Texas waters, 5s of 2029, traded at 0.90%-0.89%.

At the 10-year, Delaware GOs 5s traded at 0.93%-0.92%.

Winston Salem, North Carolina GOs 5s of 2031 traded at 1.02%-1.01%. Dallas waters, 5s of 2031, traded at 1.11%-1.11%. Ohio waters, 5s of 2032, at 1.11%-1.10%.

Out a little longer, Cypress Fairbanks, Texas ISD, 3s of 2037, traded at 1.73%-1.66%.

Lamar Texas ISD 5s of 2043 were at 1.71%-1.63%. Cypress Fairbanks, Texas ISD, 3s of 2045, traded at 2.12%-2.00%.

Readings on MMD’s AAA benchmark scale were unchanged Friday. Yields on the 2021 and 2023 maturities were steady at 0.25% and 0.27%, respectively.

The yield on the 10-year GO muni was flat at 0.90% while the 30-year yield was steady at 1.63%.

The 10-year muni-to-Treasury ratio was calculated at 134.1% while the 30-year muni-to-Treasury ratio stood at 113.8%, according to MMD.

The ICE AAA municipal yield curve showed short yields steady at 0.220% and 0.228% in 2021 and 2022, respectively. It was the same story out longer, with the 10-year maturity flat at 0.851% while the 30-year steady at 1.647%.

ICE reported the 10-year muni-to-Treasury ratio stood at 135% while the 30-year ratio was at 113%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.27% and the 2022 maturity at 0.30% while the 10-year muni was at 0.91% and the 30-year stood at 1.66%.

The BVAL curve showed the 2021 maturity flat at 0.19% and the 2022 unchanged at 0.24%. BVAL calculated the 10-year muni unchanged at 0.84% while the 30-year was steady at 1.65%.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were mixed as stocks traded higher.

The three-month Treasury note was yielding 0.153%, the 10-year Treasury was yielding 0.669% and the 30-year Treasury was yielding 1.435%.

The Dow rose 0.97%, the S&P 500 increased 0.94% and the Nasdaq gained 1.06%.

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Primary bond market Secondary bond market Municipal bond funds Regents of The University of California City of Los Angeles, CA State of Oregon