FOMC mutes muni volume; higher rates seen as buying opportunity

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Weekly municipal bond volume will be down with the Federal Open Market Committee set to meet, though no interest rate increase is expected.

Ipreo estimates volume will deflate to $4.26 billion, from the revised total of $7.95 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $2.89 billion of negotiated deals and $1.37 billion in competitive sales.

“When rates are higher, you can either fear it or see it as a buying opportunity,” said Jim Grabovac, senior portfolio manager at McDonnell Investment Management. “The market is so emotional, which is helping to drive up rates. “

Grabovac said the last time the 10-year Treasury breached 3.00% was the culmination of the taper tantrum, when the Federal Reserve signaled an end to its quantitative easing program.

“It’s a reaction to Fed tightening, which has mostly impacted the shorter end of the curve,” he said.

Dawn Mangerson, senior portfolio manager at McDonnell, added that “there is still such strong demand, especially 12 years and in on the curve. Before you had to go out longer on the curve to get yield, now you can get 2% just by going out two years.”

There are only 11 sales scheduled $100 million or larger, two of them competitive. Topping next week’s slate are two deals from the Dormitory Authority of the State of New York totaling $931 million.

Wells Fargo Securities is set to price DASNY’s $606 million of Series 2018A tax-exempt and Series 2018B taxable revenue bonds for New York University on Thursday.

Goldman Sachs is set to price DANSY’s $325 million of revenue bonds for Columbia University of Tuesday after a one-day retail order period.

The deal is rated triple-A by Moody’s Investors Service and S&P Global Ratings.

In the competitive arena, Prince George’s County, Md., is set to sell $417 million of general obligation consolidated public improvement bonds on Tuesday. The deal is rated triple-A by Fitch Ratings.

Reflecting on the week, some muni experts observed more attention from retail at higher yields, but said activity is lackluster in general.

"Overall activity is very quiet," said Bill Walsh, president of Hennion & Walsh in Parsippany, N.J.

"Munis have cheapened up this week even with Treasuries trading up the past couple days," he said. "Retail investors seem to be liking the higher yields," and they are buying a variety of issues when 4% coupon bonds are available.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended April 27 were from New York and California issuers, according to Markit.

In the GO bond sector, the New York City 0s of 2042 traded 22 times. In the revenue bond sector, the New York Transportation Development Corp. 4s of 2036 traded 82 times. And in the taxable bond sector, the California 4.6s of 2038 traded 14 times.

Week's actively quoted issues
Virgin Island, New York and California names were among the most actively quoted bonds in the week ended April 27, according to Markit.

On the bid side, the Virgin Islands Public Finance Authority revenue 5s of 2029 were quoted by 48 unique dealers. On the ask side, the New York City GO 3.375s of 2038 were quoted by 255 dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 25 dealers.

Previous session's activity
The Municipal Securities Rulemaking Board reported 44,691 trades on Thursday on volume of $13.93 billion.

New York, California and Texas were the states with the most trades, with the Empire State taking 15.278% of the market, the Golden State taking 15.135% and the Lone Star State taking 8.385%.

Lipper: Muni bond funds saw inflows
Investors in municipal bond funds reversed course and put cash back into the funds, according to Lipper data released on Thursday.

The weekly reporters saw $229.481 million of inflows in the week ended April 25, after outflows of $515.154 million in the previous week.

Exchange traded funds reported outflows of $12.637 million, after outflows of $60.766 million in the previous week. Ex-ETFs, muni funds saw $242.118 million of inflows, after outflows of $454.39 million in the previous week.

The four-week moving average remained negative at -$194.379 million, after being in the red at -$242.552 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 $88.923 million in the latest week after outflows of $83.861 million in the previous week. Intermediate-term funds had inflows of $67.332 million after inflows of $16.059 million in the prior week.

National funds had inflows of $257.056 million after outflows of $421.893 million in the previous week. High-yield muni funds reported inflows of $177.482 million in the latest week, after inflows of $45.728 million the previous week.

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.

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Primary bond market Sell side Secondary bond market Municipal bond funds New York State Dormitory Authority County of Prince George’s, MD New York Transportation Development Corp City of New York, NY State of California Virgin Islands Public Finance Authority