Municipal bonds strengthened again on the long end Friday as U.S. election week came to a close.
Yields on top-quality bonds fell on the long end of the AAA scales by as much as one basis point. On the week, muni yields were down from 12 to 15 basis points. Muni to Treasury ratios moved below 100% on Friday to near more historic levels. The last time the muni/Treasury ratios were under 100% was on Aug. 17 when the 10-year was 96.8% and the 30-year was 95.7%.
The combination of a lack of deals and a slow Friday following the still-undecided presidential election made for an “extremely slow and very quiet” trading session, according to an Atlanta trader.
“We were busy and had some activity post-election on Wednesday with the big market move, but today is real quiet because of the typical uncertainty out there,” the trader said Friday afternoon.
The election added an extra challenge seasonally for November, with Veteran’s Day in the middle of the upcoming week Thanksgiving only two weeks later, he said.
“I don’t think there will be a lot of pick up until the week after next, in between the two holidays,” he said. “We’ll basically have one full week after next and then Thanksgiving.
The upcoming Veteran’s Day mid-week holiday will again keep primary activity in the municipal bond market to a minimum. The markets are closed on Wednesday in honor of America’s armed services veterans.
IHS Ipreo estimates volume for the upcoming week at $2.8 billion, up from the under $1 billion mark seen in the previous week. The calendar is composed of $2.07 billion of negotiated deals and $725 million of competitive sales.
Refinitiv MMD estimates the supply total consists of $1.71 billion of tax-exempts and $1.08 billion of taxables. The year-to-date weekly average volume has been $6.2 billion.
Primary market
The week’s calendar is filled with revenue bond deals.
“There are a lot more revenue bonds on the calendar than we have had in some weeks,” said John Hallacy, founder of John Hallacy Consulting LLC. “And there is a more variety of revenue bond deals than we’ve had in several weeks.”
Topping the list of new offerings is the state of Louisiana’s (Aa3/NR/AA-/NR) remarketing of $424 million of gasoline and fuels tax second lien revenue refunding bonds. Wells Fargo Securities is expected to price the conversion of the interest-rate mode bonds on Thursday.
The California Earthquake Authority’s (NR/NR/A/AA-) will be coming to market with $300 million of Series 202B taxable revenue bonds. Citigroup is expected to price the deal on Thursday.
The North Dakota Housing Finance Agency (Aa1///) is offering $12 million of housing finance program bonds not subjec6t to the alternative minimum tax. RBC Capital Markets is set to price the bonds for the home mortgage finance program on Tuesday.
The Missouri State Environmental Improvement and Energy Resources Authority (Aaa/AAA//) is coming with $100 million of Series 2020B taxable water pollution control and drinking water refunding revenue bonds. BofA Securities is expected to price the deal on Tuesday.
In the competitive arena, Portland, Ore., (Aa2/AA//) is selling $223.805 million of Series 2020A second lien sewer system revenue bonds on Tuesday. Proceeds will be used to finance capital assets of the sanitary sewer and stormwater drainage system and fund a reserve subaccount. PFM Financial Advisors is the financial advisor; Hawkins Delafield is the bond counsel.
There are several deals from California on the negotiated slate.
Morgan Stanley is expected to price the Contra Costa Community College District, Calif.’s (Aa1/AA+//) $110 million of Election of 2014 general obligation bonds on Tuesday.
BofA is set to price Gardena, Calif’s (/AA-//) $101 million of Series 2020 taxable pension obligation bonds on Tuesday.
The Bush Foundation of Minnesota (Aaa////) is coming to market with a $100 million taxable social bond issue. RBC Capital Markets is set to price the corporate CUSIP deal on Tuesday.
Proceeds will used to make grants “to counter systemic racial injustice experienced acutely by Native Americans and Black/African Americans,” according to the investor roadshow. Projects will be focused on home ownership, education, entrepreneurship and other economic development.
Secondary market
The most active bond types traded this week were revenue bonds, followed by GOs and taxables, according to IHS Markit.
On Friday, high-grade municipals were mixed, according to final readings on Refinitiv MMD’s AAA benchmark scale. Short yields in 2021 and 2022 were unchanged at 0.18% and 0.19%, respectively. The yield on the 10-year muni dropped one basis point to 0.81% while the yield on the 30-year declined one basis point to 1.56%
On Friday, Oct. 30, the yield on the 10-year muni stood at 0.93%, according to Refinitiv Municipal Market Data, while the yield on the 30-year muni was at 1.71%.
The 10-year muni-to-Treasury ratio was calculated at 99.0% while the 30-year muni-to-Treasury ratio stood at 97.7%, according to MMD
The ICE AAA municipal yield curve showed short maturities were unchanged in 2021 and 2022 at 0.18% and 0.20%, respectively. The 10-year maturity fell two basis points to 0.81% and the 30-year yield declined one basis point to 1.57%.
The 10-year muni-to-Treasury ratio was calculated at 99% while the 30-year muni-to-Treasury ratio stood at 98%, according to ICE.
The IHS Markit municipal analytics AAA curve showed short yields steady at 0.16% and 0.17% in 2021 and 2022, respectively, with the 10-year dropping to 0.83% and the 30-year yield down to 1.57%.
The BVAL AAA curve showed the yields on the 2021 and 2022 maturities unchanged at 0.14% and 0.16%, respectively, while the 10-year dropped one basis point to 0.83% as the 30-year fell one basis point to 1.60%.
Treasuries were weaker as stock prices traded lower.
The three-month Treasury note was yielding 0.10%, the 10-year Treasury was yielding 0.82% and the 30-year Treasury was yielding 1.59%. The Dow fell 0.35%, the S&P 500 decreased 0.14% and the Nasdaq lost 0.15%.
Bond Buyer indexes move lower
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, dipped one basis point to 3.61% from 3.62% in the previous week.
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields dropped 10 basis points to 2.24% from 2.34% from the previous week.
The 11-bond GO Index of higher-grade 11-year GOs declined 10 basis points to 1.77% from 1.87%.
The Bond Buyer's Revenue Bond Index declined 16 basis points to 2.60% from 2.76%.
