Healthcare, taxable deals dominate; 2020 elections may cause disruption

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This week holds something for everybody in the municipal bond market. Big taxable deals along with the usual tax-exempt bond sales make up much of the calendar, which also boasts some big note sales. Healthcare and education deals will dominate the week’s action, which kicks off on Tuesday.

2020 elections may cause market disruption soon
The U.S. presidential election in 2020 will become a key market driver soon, according to a new report from BNP Paribas.

“The potential impact of the 2020 U.S. elections on the credit markets should not be underestimated. This is because there are significant macro and micro policy differences between candidates,” according to the BNP credit strategy team. “Furthermore, the news flow will quickly accelerate in 1Q20 as the Democratic Party primary calendar is quite compact: two-thirds of the delegates will be designated by March 17.”

BNP’s Viktor Hjort, Dominique Toublan and Paola Lamedica wrote that while it is hard to determine who will win the Democrats’ primaries months ahead of time, this can lead to market volatility now. However, they added that the successful candidate may emerge before the end of the first quarter of 2020.

The elections could be disruptive to the financial markets because there is a significant gap in world views and priorities between the candidates, they said, adding that it was a polarized field with potentially extreme outcomes.
“These differences are clearly seen in policy proposals. At the macro level, the trade war has been a key market driver. President Trump has initiated and expanded the trade war with China over the last year. It is not clear whether a new president would pursue the same strategy with China and/or open a new front with Europe,” they wrote.

But BNP said it believes that tension with China will continue into the future because it is also driven by differences between the U.S. and China on other issues besides trade.

“At the micro level, the policy gap between the more liberal wing of the Democratic Party and President Trump is quite large. Therefore, the elections outcome is likely to markedly impact valuations in some sectors,” they wrote.

BNP also said the market should pay attention to the makeup of the Senate.

“The Senate’s approval will be needed for a full enactment of some of the most liberal policies discussed by the Democrats,” BNP said. “While the seat renewal numbers work in favor of the Democrats this time, flipping the Senate majority is not straightforward and securing a supermajority (two-thirds) to avoid filibusters is much harder.”

They said that the Senate is a key factor for any major changes to be implemented because “it is clear that a Republican-held Senate will severely limit the ability of a Democrat administration to act on policy promises. Therefore, the U.S. elections have to be considered in their entirety to assess the full potential impact on the markets. Overall, the Senate hurdle makes it less likely for many of the most liberal policies to be enacted.”

Primary market
Market focus on Tuesday turns to the competitive note sector, where large deals from Massachusetts (MIG1/SP1+/F1+/NR) and the Chicago Public Schools are set to hit the screens.

The Bay State will sell $1.4 billion of general obligation revenue anticipation notes in three offerings, consisting of $500 million of Series A RANs, $500 million of Series B RANs and $400 million of Series C RANs. Acacia Financial Group is the financial advisor; Mintz Levin is the bond counsel.

And amid a teacher strike, the Chicago Board of Education is set to sell $250 million of Series 2019A bond anticipation notes. PFM Financial Advisors is the financial advisor; Ice Miller and Pugh Jones Johnson are the bond counsel.

On the competitive bond slate, North St. Paul Independent School District No. 622, Minn., (is selling $193 million of GOs while Napa Valley Unified School District, Calif., (a1/A+/NR/NR) is set to sell $119 million of GOs and Falls Church, Va., (Aaa/AAA/AAA) Sells $118.545 million of GOs.

In the negotiated sector, Goldman Sachs is set to price the New York and Presbyterian Hospital’s (Aa2/NR/AA/NR) $500 million of Series 2019 taxable corporate CUSIP bonds.

“The municipal market absorbed a sizeable new issue calendar last week and this week appears to be more of the same with about $12.5 billion teed up for sale,” Janney said in a market comment. “As was the case last week, taxable bonds will account for a large slice of the coming week’s offerings ... if taxable issues are excluded, the coming week’s primary slate includes only $8.6 billion of tax-free offerings, which should be comfortably digested given the continued inflows to tax free mutual funds and ETFs.”

Secondary market
Munis were weaker on the MBIS benchmark scale, with yields rising by two basis points in the 10- and 30-year maturities. High-grades were also weaker, with yields on MBIS AAA scale rising by three basis points in the 10-year maturity and by two basis points in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO rose three basis points to 1.50% while the 30-year rose two basis points to 2.09%.

“The ICE muni yield curve is one to two basis points higher in the face of this week’s upcoming $12.5 billion new issuance coming to market,” ICE Data Services said in a Monday market report. “Taxables are two to four basis points higher. Tobaccos are flat to one basis point higher, while high-yield is unchanged, along with Puerto Rico.”

The 10-year muni-to-Treasury ratio was calculated at 83.5% while the 30-year muni-to-Treasury ratio stood at 91.4%, according to MMD.

The most actively traded issues on Monday were from the New York State Thruway Authority deal priced last week.

The authority’s Series 2019B general revenue junior indebtedness obligations 3s of 2046 [650010CF6], originally priced at 95.927 to yield 3.2% traded at a high price of 98.77 cents on the dollar, a low yield of 3.059%. The authority’s Series 2019B general revenue junior indebtedness obligations 3s of 2046 [650010CE9], originally priced at 98.213 to yield 3.1% traded at a high price of 100.718 cents, a low yield of 2.918%. And the authority’s Series 2019B general revenue junior indebtedness obligations of 2053 [650010CH2], originally priced at 96.924 to yield 3.15% traded at a high price of 100.003 cents, a low yield of 2.999%.

Stocks were trading little changed as Treasuries weakened. The Treasury three-month was yielding 1.669%, the two-year was yielding 1.590%, the five-year was yielding 1.597%, the 10-year was yielding 1.794% and the 30-year was yielding 2.287%.
Previous session's activity
The MSRB reported 29,101 trades Friday on volume of $12.12 billion. The 30-day average trade summary showed on a par amount basis of $10.86 million that customers bought $5.93 million, customers sold $3.05 million and interdealer trades totaled $1.88 million.

New York, California and Texas were most traded, with the Empire State taking 13.738% of the market, the Golden State taking 11.318% and the Lone Star State taking 9.682%.

The most actively traded securities were the Rutgers University of New Jersey taxable GO 3.27s of 2043, which traded 16 times on volume of $208 million. The bonds, which were originally priced at par, traded at a high price of 100.806 cents on the dollar.

Last week's activate traded issues
Revenue bonds made up 53.01% of total new issuance in the week ended Oct. 18, down from 53.36% in the prior week, according to IHS Markit. General obligation bonds were 41.75%, up from 41.09%, while taxable bonds accounted for 5.55%, up from 5.55%.
Some of the most actively traded munis by type in the week were from California, New York and Massachusetts issuers.

In the GO bond sector, the San Diego Unified School District, Calif., 4s of 2021 traded 16 times. In the revenue bond sector, the New York Metropolitan Transportation Authority 4s of 2020 traded 40 times. In the taxable bond sector, the Massachusetts Water Resources Authority 3.104s of 2039 traded 24 times.

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.

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