The municipal market won't slow down, not even during a holiday shortened week, as an excess of $8 billion is on the calendar for the four days.
Primary Market
Volume for the week of Oct. 14 is forecast by Ipreo to slip to $8.41 billion, from a total of $9.66 billion in the past week, according to revised data from Thomson Reuters. The upcoming slate is composed of $7.58 billion of negotiated bond deals and roughly $835 million of competitive bond sales.
"We had an odd week last week with the holidays at the beginning of the week and then the unemployment number at the end, and now with next week, we have Columbus Day and Yom Kippur but the issuance keeps flowing," said a New York Trader. "You almost never see this kind of volume on a shortened week."
Market participants will see multiple billion dollar deals this week, with the bulk of the supply probably coming on Thursday.
"There is now over a 60% chance of an interest rate hike in December and I think issuers are trying to get deals done before rates rise even more and they are going with the sooner rather than later philosophy," said a market source.
Bank of America Merrill Lynch will run the books on the largest scheduled negotiated deal of the week, the State of Illinois' $1.349 billion of general obligation refundings on Thursday. The deal is rated Baa2 by Moody's Investors Service, BBB by S&P Global Rankings and BBB-plus by Fitch Ratings.
Illinois was already the lowest rated state, suffered a new downgrade, as S&P dropped the states GO rating to BBB on Oct. 3.
"Although general market yield levels have backed up a bit due to supply, we don't think spreads for Illinois will change materially because the market appetite for extra yield is still there," said Triet Nguyen, a managing director at NewOak Capital LLC. "The recent downgrades by the rating agencies have by and large been anticipated by the market."
Citi will be the lead manager on the other billion dollar deal on Thursday– Great Lakes Water Authority's roughly $899 million of water supply system revenue refundings bonds and $416 million of sewage disposal system revenue refunding, totaling $1.315 billion and featuring both senior liens and seconds liens.
Ahead of the sale, Moody's upgraded the senior lien to A3 from Baa1 and the second lien to Baa1 from Baa2. Fitch Ratings upgraded the senior lien bonds by three levels to A from BBB and the second lien to A-minus from BBB-minus. S&P affirmed its A-minus rating on the senior lien bonds and the BBB-plus rating on the second lien bonds.
"There has been pretty strong demand for yield-ier deals but I do think they probably will have a little harder time than in the recent past to get those done, there is headline risk with Illinois in particular," said a market source. "I do think they can get the deals done if they come with attractive yields."
JPMorgan is expected to price $766.135 million for the Industrial Development Authority of the County of Maricopa, Az., for Banner Health on Thursday. The deal is rated AA-minus by both S&P and Fitch.
As far as the competitive calendar, there is only one scheduled deal larger than $100 million. The Campbell County Sanitation District No.1, in Kentucky is scheduled to sell $138.02 million of revenue refunding bonds on Wednesday. The deal is rated Aa3 by Moody's and AA by S&P.
"I think in the end, the supply will get absorbed but maybe not as easily as it has been," said the market source.
Secondary Market
Top shelf municipal bonds finished steady on Friday, traders said.
The yield on the 10-year benchmark muni general obligation was unchanged from 1.64% on Thursday, while the yield on the 30-year was steady at 2.45%, according to the final read of Municipal Market Data's triple-A scale.
Since the previous Friday, yields have risen between 13 and 14 basis points; on Sept 30 the 10-year muni yield stood at 1.51% while the 30-year yield was at 2.31%. Muni yields, however, remain near historically low levels. On Jan. 4, the 10-year was yield was at 1.87% while the 30-year yield was at 2.77%.
U.S. Treasuries were little changed on Friday after the release of a weaker-than-expected employment report for September.
Non-farm payrolls rose 156,000 last month; economists polled by IFR Markets had expected a gain of 170,000 jobs. The unemployment rate rose to 5.0% in September from 4.9% in August. Economists surveyed by IFR had expected the rate to remain flat in September.
The yield on the two-year Treasury dipped to 0.84% from 0.85% on Thursday, the 10-year Treasury yield was unchanged from 1.74% and the yield on the 30-year Treasury bond increased to 2.47% from 2.46%.
The 10-year muni to Treasury ratio was calculated at 94.7% on Friday compared to 94.3% on Thursday, while the 30-year muni to Treasury ratio stood at 99.3% versus 99.7%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Oct. 7 were from Massachusetts, New York and California,
In the GO bond sector, the Massachusetts 2s of 2017 were traded 33 times. In the revenue bond sector, the New York Metropolitan Transportation Authority 2s of 2017 were traded 33 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 24 times.
Week's Most Actively Quoted Issues
Illinois, Colorado and New York and New Jersey issues were among the most actively quoted bonds in the week ended Oct. 7, according to Markit.
On the bid side, the Illinois taxable 5.1s of 2033 were quoted by 39 unique dealers. On the ask side, the Colorado Health Facilities Authority revenue 3.125s of 2042 were quoted by 349 unique dealers. And among two-sided quotes, the Port Authority of New York & New Jersey taxable 4.458s of 2062 were quoted by 20 unique dealers.
Lipper Reports Inflows
Municipal bond funds reported inflows for the 53rd week in a row, according to Lipper data released on Thursday.
The weekly reporters saw $324.600 million of inflows in the week ended Oct. 5, after inflows of $664.257 million in the previous week, Lipper said.
The four-week moving average remained positive at $497.993 million after being in the green at $663.289 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 experienced inflows, gaining $134.483 million in the latest week after inflows of $479.393 million in the previous week. Intermediate-term funds had inflows of $110.063 million after inflows of $96.318 million in the prior week.
National funds had inflows of $263.911 million on top of inflows of $563.967 million in the previous week. High-yield muni funds reported outflows of $33.243 million in the latest reporting week, after inflows of $204.956 million the previous week.
Exchange traded funds saw inflows of $92.295 million, after inflows of $53.849 million in the previous week.
