Municipal yields held steady as the market awaits large Texas and California deals. The new-issue calendar features billion dollar deals from the Southwest and West regions of the country.
The cities of Dallas and Fort Worth, Texas’ (A1/A/A+/AA) are coming to market for the second week in a row, this time with a taxable sale.
Morgan Stanley is set to price the $1.139 billion of Series 2020C taxable joint revenue refunding bonds for Dallas Fort Worth International Airport on Thursday.
In the prior week, Ramirez & Co. priced DFW’s $461 million of Series 2020B tax-exempt joint revenue refunding bonds not subject to the alternative minimum tax.
Bonds and notes, both taxable and tax-exempts are at the top of the slate.
Investors are looking to Texas for safety, sources said. School districts are trading in large blocks as investors have faith the state will return to normal, post-COVID-19 and a vaccine. However, larger than that is the
"What the alternative revenue sources for DFW represent for the credit are extremely attractive in these times," a Dallas-based strategist said. "These bonds represent a safe security for longer duration. Investors are interested in the fact that Texas is sitting on oil fields and natural gas opportunities that provide certainty in uncertain times. The security has a backing that is quite valuable, even during these times of less airport travel.
"In fact, as much as new, cleaner modes of energy production grow, what this crisis will show is that the political and economic conditions will force the U.S. to rely on its oil- and natural-gas-producing states for the immediate future," she added.
A New York strategist pointed out, though, that Texas generally is a good-quality credit, with low tax rates and a potential for real growth post-pandemic.
"Investors are really just looking for paper and if a massive deal out of Dallas comes, there will be buyers across the board," he said.
"The market knows cities and towns will make it through this; just how they recover remains to be seen," he said.
The municipal market generally saw a solid, yet quiet, summer week ahead of another upcoming calendar.
“Demand remained stable bolstered by continued municipal fund inflows,” said Shaun Burgess of Cumberland Advisors.
However, there is a preference for attractive returns as municipal yields remain at historic lows.
“Cheap deals where participants found additional spread continue to get oversubscribed,” Burgess said Friday.
As the market prepares for the $1.13 billion Dallas, Texas, deal and the pricing of over $1 billion of California Department of Water Resources revenue bonds, the market will be eager to participate.
“The market should be able to absorb the supply — contingent on yield of course,” Burgess added.
Primary market
IHS Ipreo estimates bond volume for the week of July 27 at $7.79 billion in a calendar composed of $6.69 billion of negotiated deals and $1.10 billion of competitive sales.
Morgan Stanley is set to price the California Department of Water Resources’ (Aa1/AAA/NR/NR) $1.097 billion of water system revenue bonds for the Central Valley project on Wednesday.
The deal consists of $552.49 million of Series BB tax-exempts and Series BC taxables.
In the competitive arena, Colorado is selling over $1 billion of tax and revenue anticipation notes in two offerings.
The state will sell $600 million of Series 2020 general fund TRANs on Thursday and $410 million of Series 2020A education loan program TRANs on Tuesday.
Stifel is the financial advisor and Sherman & Howard is the bond counsel for the Series 2020TRANs while RBC Capital Markets is the financial advisor and Kutak Rock is the bond counsel for the Series 2020A TRANs.
Lipper reports $2.1B inflow
Investors remained bullish on municipal bonds and continued to put cash into bond funds in the latest reporting week.
In the week ended July 22, weekly reporting tax-exempt mutual funds saw $2.100 billion of inflows, after inflows of $857.321 million in the previous week, according to data released by Refinitiv Lipper Thursday.
It was the 11th week in a row that investors put cash into the bond funds.
Exchange-traded muni funds reported inflows of $298.936 million, after inflows of $202.119 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.801 billion after inflows of $655.202 million in the prior week.
The four-week moving average remained positive at $1.262 billion, after being in the green at $1.105 billion in the previous week.
Long-term muni bond funds had inflows of $980.538 million in the latest week after inflows of $401.693 million in the previous week. Intermediate-term funds had inflows of $150.138 million after inflows of $166.924 million in the prior week.
National funds had inflows of $2.013 billion after inflows of $822.187 million while high-yield muni funds reported inflows of $391.532 million in the latest week, after inflows of $123.868 million the previous week.
Secondary market
Some notable trades Friday:
Beverly Hills, California, USD, 2s of 2022, traded at 0.13%.
The Port Authority of Houston, 5s of 2030, traded at sub-1.00% levels at 0.92%.
Montgomergy County, Maryland 3s of 2033, traded at 1.22%-1.20% while on Thursday they traded at 1.25%. Washington state GOs, 5s of 2034, traded at 1.14%-1.13% after originally yielding 1.21% in the new issue.
Fort Worth, Texas, ISD 4s of 2035 traded at 1.33%-1.27% while Humble Texas ISD 2s of 2036 traded at 1.77%-1.73%, priced to yield 1.84% originally.
Municipals were steady all along the curve, according to readings on Refinitiv MMD’s AAA benchmark scale.
MMD reported yields on the 2021 and 2023 GO munis were unchanged at 0.13% and 0.15%, respectively. The yield on the 10-year GO muni was flat at 0.72% while the 30-year yield was steady at 1.43%.
The 10-year muni-to-Treasury ratio was calculated at 120.5% while the 30-year muni-to-Treasury ratio stood at 115.5%, according to MMD.
“Muni bonds are ending the week unchanged, taking a breather from steady day-to-day improvement,” ICE Data Services said. “Trade volumes are good for a Friday."
Muni percentage of Treasury yields are still generally above 100%, except for tenors for four-years and in, ICE said.
The ICE AAA municipal yield curve showed short yields flat at 0.120% in 2021 and 0.127% in 2022. The 10-year maturity was unchanged at 0.683% and the 30-year was steady at 1.455%.
ICE reported the 10-year muni-to-Treasury ratio stood at 124% while the 30-year ratio was at 115%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.13% and the 2022 maturity at 0.16% while the 10-year muni was at 0.69% and the 30-year stood at 1.42%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were weaker as stock prices traded down.
The three-month Treasury note was yielding 0.119%, the 10-year Treasury was yielding 0.588% and the 30-year Treasury was yielding 1.237%.
The Dow declined 0.57%, the S&P 500 decreased 0.55% and the Nasdaq dropped 0.77%.
Bond Buyer indexes weaken
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, fell three basis points to 3.55% from 3.58% the week before.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields fell two basis points to 2.10% from 2.12% in the previous week.
The 11-bond GO Index of higher-grade 11-year GOs declined two basis points to 1.63% from 1.65%.
The Bond Buyer's Revenue Bond Index decreased two basis points to 2.52% from 2.54%.
Lynne Funk contributed to this report.
