FOMC keeps municipal market cautious as Maryland sells bonds

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Municipal bond buyers bought up the issues that came to market on Wednesday as demand stayed strong, though the tone remained cautions as Federal Reserve policy makers met in Washington.

The Federal Open Market Committee meeting yielded no surprises — interest rates were left at a 1.75% to 2% target, gradual rate hikes remain the plan, risks to the outlook are “roughly balanced,” and policy is still seen as “accommodative.”

As expected, the minutes of this meeting, which will be released on Aug. 22, could give insight into the Fed’s thinking on the yield curve, trade issues and possibly the neutral rate.

“There were almost no substantive changes in this month's FOMC statement, the only thing approaching any significance being a change in their assessment of economic growth from ‘solid’ to ‘strong,’ " IFR Markets said in a statement. “Otherwise, changes were generally of tense, such as the assessment that core inflation has moved close to 2% changing to say it ‘remained near’ 2%. Of course, there was no rate hike, and the decision was unanimous.”

With a limited calendar this week and little reaction from the market to the FOMC meeting, a New York trader described activity on the lackluster side, but said municipals were holding their own in the backdrop of a weakening Treasury market on Wednesday afternoon before the close.

“The market is definitely cheaper by about three to four basis points,” he said. “For a light calendar and not much of a supply week last week, the market feels a little heavy,” he said.

“Treasuries are not helping us out,” he said. “The market is giving ground, but it remains orderly. With every weakening in the Treasury market there are less and less participants looking at munis.”

He said the New York issues this week and some larger deals from prior weeks were weighing heavy on the market and investors were being patient in the midst of a reasonable amount of bid wanted lists.

“There’s a little apathy and a cheaper rate environment today,” he said. “Deals seem to be getting done, but I wouldn’t say anything is gangbusters.”

“If the market in Treasuries continues to drift we’ll have a little staying power, but if Treasuries do better we would be left in the dust and be lagging,” the trader added.

The FOMC meeting was uneventful in terms of market reaction, he said.

“There were no surprises,” the trader said, as the meeting failed to produce market moving statements or action and was similar to its June statement. "It was benign and the market didn’t move either way,” he said. “The reality is it’s sort of slow going, but as long as you have Treasuries feeling weaker, it’s a good excuse not to do anything in our market.”

Primary market
In the competitive arena, Maryland sold two deals totaling over $500 million on Wednesday.

Goldman Sachs won the $275.3 million of Bidding Group 1 state and local facilities loan of 2018 second series tax-exempt bonds with a true interest cost of 2.3281%.

Citigroup won the $234.71 million of Bidding Group 2 state and local facilities loan of 2018 second series tax-exempt bonds with a TIC of 3.1246%.

The Maryland bonds are rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.

Since 2008, the Free State has sold over $15 billion of bonds, with the most issuance occurring in 2017 when it offered nearly $2.5 billion of debt. It sold the least amount of bonds in 2008 when it issued $815 million of bonds.

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Citigroup received the written award on the Forsyth County School District, Ga.’s $147.5 million of Series 2018 general obligation bonds. The deal is rated triple-A by Moody’s and S&P.

And JPMorgan Securities received the official award on the Nebraska Investment Finance Authority’s $171.045 million of Series 2018C single-family housing revenue bonds not subject to the altnerative minimum tax. The deal is rated AA-plus by S&P.

Wednesday’s bond sales

Maryland:
Click here for the $275M sale

Click here for the $235M sale

Georgia
Click here for the Forsyth County school deal

Nebraska
Click here for the IFA deal

Bond Buyer 30-day visible supply at $8.22B
The Bond Buyer's 30-day visible supply calendar decreased $655.8 million to $8.22 billion for Thursday. The total is comprised of $2.96 billion of competitive sales and $5.26 billion of negotiated deals.

NYC to sell $871M bonds next week
New York City plans to sell next week about $871 million of general obligation bonds, comprised of approximately $811 million of tax-exempt fixed-rate bonds and $60 million of taxable fixed-rate bonds.

Proceeds from the sale will be used to refund outstanding bonds, with the exception of proceeds from around $41 million of the tax-exempt fixed-rate bonds, which will be used to convert outstanding floating rate bonds into fixed rate bonds.

The deal is expected to be priced in a negotiated transaction on Wednesday, Aug. 8, by the city’s underwriting syndicate led by book-running senior manager RBC Capital Markets, with Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan Securities, Jefferies, Loop Capital Markets, Ramirez & Co., and Siebert Cisneros Shank & Co. serving as co-senior managers. There will be a two day retail order period beginning on Monday, Aug. 6.

Also on Aug. 8, the city expected to competitively sell about $60 million of taxable fixed-rate bonds.

Secondary market
Municipal bonds were weaker on Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose as much as two basis points in the one- to 30-year maturities.

High-grade munis were mostly weaker, with yields calculated on MBIS’ AAA scale rising as much as one basis point across most of the scale except for one-year where yields fell six basis points and the eight- and nine-year maturities where yields fell less than a basis point.

Municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising three basis points and the yield on the 30-year muni maturity gaining four basis points.

Treasury bonds were weaker as stocks traded mixed.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 82.6% while the 30-year muni-to-Treasury ratio stood at 97.6%, 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.

The municipal market was firm, but cautious on Wednesday morning as the quiet summer cycle continues to leave much to be desired by hungry investors, according to one New York trader.

Municipal yields in 10-years and under were unchanged in early trading as some of the week’s new deals gained a little momentum and the market looked for a continued positive tone, he said. “I think the market is comfortable with where it’s positioned in the backdrop of positive technicals.”

Demand remains heavy even though volume continues to be down for the year — and investors are being picky when it comes to completing trades in the intermediate slope of the yield curve.

“If it’s any example, we have seven to eight solid buyside inquiries for paper in the five- to 15-year range that are very specific and we are having a hard time filling those,” he said.

In addition, he said dealers are “a little light,” and arbitrage accounts are showing less inventory during the summer months when there is less liquidity.

“They likely feel there may be some improvement on a relative basis going forward, so they are only putting out selective offerings right now,” until summer ends, he added.

Previous session's activity
The Municipal Securities Rulemaking Board reported 42,205 trades on Tuesday on volume of $12.40 billion.

Puerto Rico bonds ease off after rally
In late trading on Wednesday, the Puerto Rico Electric Power Authority’s Series 2007 TT 5% revenue bonds of 2037 were trading at a high price of 60.50 cents on the dollar, down slightly from a high price of 60.525 cents on Tuesday, but still sharply higher than the high of 43.75 cents seen on Monday, according to the Municipal Securities Rulemaking Board’s EMMA website. Trading was active with volume totaling $14.015 billion in 25 trades compared to $3.065 million in 37 trades on Tuesday and $350,000 in eight trades on Monday.

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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market City of New York, NY
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