Municipal bond supply drops off sharply next week with most sales jammed into a two-day timeframe during a holiday-shortened trading week. U.S. financial markets are closed on Monday for Columbus Day.
Ipreo forecasts weekly bond volume will decrease to $4.4 billion from a revised total of $8.1 billion in the prior week, according to updated data from Thomson Reuters. The calendar is composed of $3.6 billion of negotiated deals and $815.3 million of competitive sales.
Primary market
Topping the negotiated sector, the Maricopa County Special Health Care District, Ariz., is coming to market with $400 million of general obligation bonds.
JPMorgan Securities is set to price the Series 2018C GOs on Thursday.
Proceeds of the sale will be used for capital improvements or renovations to the district’s hospitals and ambulatory and outpatient facilities.
Stifel is the financial advisor while Ballard Spahr is bond counsel.
The deal is rated Aa3 by Moody’s Investors Service and AAA by Fitch Ratings.
Siebert Cisneros Shank & Co. is expected to price the North Texas Tollway Authority’s $347 million of Series 2018 second tier revenue refunding bonds on Thursday.
Co-managers are Citigroup, FTN Financial Capital Markets, Jefferies and JPMorgan. The financial advisors are Hilltop Securities, Estrada Hinojosa and the RSI Group. Bond counsel are McCall Parkhurst & Horton and Mahomes Bolden.
The deal is rated A2 by Moody’s and A by S&P Global Ratings.
In the competitive arena, the Fremont Unified School District, Calif., is selling $127 million of Series C Election of 2014 GOs on Wednesday.
Proceeds are being issued to acquire, repair and build the district’s equipment, sites and facilities.
The financial advisor is Keygent and the bond counsel is Stradling Yocca. The deal is rated AA-minus by S&P.
In the short-term competitive sector, the Louisville and Jefferson County Metropolitan Sewer District., Ky., is selling $226 million of sewer and drainage system subordinated bond anticipation notes on Tuesday.
The financial advisor is J.J.B. Hilliard, W.L. Lyons and the bond counsel is Wyatt Tarrant.
Bond Buyer 30-day visible supply at $7.64B
The Bond Buyer's 30-day visible supply calendar increased $1.93 billion to $7.64 billion for Friday. The total is comprised of $2.47 billion of competitive sales and $5.17 billion of negotiated deals.
ICI: Long-term muni funds saw $385M outflow
Long-term tax-exempt municipal bond funds saw an outflow of $385 million in the week ended Sept. 26, the Investment Company Institute reported.
This followed an inflow of $116 million into the tax-exempt mutual funds in the week ended Sept. 19 and inflows of 30 million, $4 million, $273 million, $531 million, $662 million, $723 million, $163 million, $600 million and $1.765 billion in the nine prior weeks.
Taxable bond funds saw an estimated inflow of $3.058 billion in the latest reporting week, after seeing an inflow of $4.223 billion in the previous week.
ICI said the total estimated outflows to long-term mutual funds and exchange-traded funds were $1.011 billion for the week ended Sept. 26, after inflows of $13.145 billion in the prior week.
Secondary market
Municipal bonds were weaker on Friday, according to Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising as much as one basis point while the yield on 30-year muni maturity increased as much as two basis points.
Treasury bonds were weaker as stock prices traded lower.
On Thursday, the 10-year muni-to-Treasury ratio was calculated at 83.4% while the 30-year muni-to-Treasury ratio stood at 98.8%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Previous session's activity
The Municipal Securities Rulemaking Board reported 45,598 trades on Thursday on volume of $15.92 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 16.532% of the market, the Empire State taking 15.354%, and the Lone Star State taking 7.488%.
Treasury contagion
The impact of the Treasury weakness continued in the municipal market on Thursday as buyers reacted with some uncertainty, resistance, and skittishness, according to one New York trader.
“The market has undergone somewhat of a paradigm shift this week and psychological change,” he said. “The break in Treasuries is bringing about some speculation about the end of the 30-year bull market after Treasuries puked overnight,” he said. “That changes the psychology of the market without a doubt.”
With higher rates expected in the future, Treasuries bounced around and municipals felt the impact as yields rose. “We could go to between 3% and 3.50% on the 10-year Treasury in the next range and it will take a while until the new levels settle in,” he said.
Within that context, he said municipals are “doing OK” — despite seeing yields bump up as much as three basis points on Thursday afternoon. “Today the market opened up as if it needed to adjust to the down trade that it didn’t adjust to yesterday,” he said Thursday.
“There is still solid demand out there, but the demand is bifurcated …. with the SMAs and individual retail on the front end, and the long end the institutional accounts,” he added. “If we were to gap lower in Treasuries the reaction would be to drop the bid substantially in munis.”
The trader noted the last time Treasuries were this volatile was two years ago in November 2016, following the presidential election. “When it moves that much for the first time in two years you back off a little bit,” he said of Thursday’s market skittishness.
Lipper: Muni bond funds saw outflows
Investors in municipal bond funds remained cautious and again pulled cash out of the funds during the latest reporting week, according to Lipper data released on Thursday.
The weekly reporters saw $43.626 million of outflows in the week ended Oct. 3 after outflows of $384.796 million in the previous week.
Exchange traded funds reported inflows of $116.152 million, after outflows of $152.012 million in the previous week. Ex-ETFs, muni funds saw $159.778 million of outflows, after outflows of $232.784 million in the previous week.
The four-week moving average remained negative at -$106.017 million, after being in the red at $140.470 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 $91.187 million in the latest week after outflows of $371.535 million in the previous week. Intermediate-term funds had outflows of $140.647 million after inflows of $131.732 million in the prior week.
National funds had inflows of $28.651 million after outflows of $346.384 million in the previous week. High-yield muni funds reported outflows of $113.789 million in the latest week, after outflows of $129.551 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.
