Average week for municipals with $5B in new issues while all eyes rest on the Fed
The muni market will slow down this week, as all markets and investors are waiting to see how much the Fed will cut interest rates on Wednesday. Will it be 25 basis points or 50?
Volume is tempered this week due to the scheduled Federal Open Market Committee Meeting but at an estimated $4.9 billion is not that far off from the 2019 weekly average of $5.5 billion.
It looks as if issuers are primed and ready to hit the market on the heels of whatever decision the Fed makes, as there are currently three negotiated deals in excess of $1 billion expected to hit the week of Aug. 5. CommonSpirit is set to bring $1.6 billion, The Port Authority of New York and New Jersey is set to come with $1.3 billion and Dallas Fort-Worth International Airport with a $1.15 billion taxable deal. Plus there will be a whole slew of other deals in the $100 million-$700 million range.
“The strength of the economic data stream supports our moderately bearish view on muni rates,” The Bank of America Securities municipal research team wrote in its most recent report. “Our U.S. economists expect a 25 basis point cut on 31 July from the Fed. Strong durable goods orders and in-line housing sales data for June — coupled with recent strength in retail sales, jobs and inflation — indicate a solid economy and support that view of a quarter point reduction in rates.”
The team noted that Treasuries have experienced a bear steepening since 10-year rates reached a 1.94% low in early July. In the meantime, muni AAA rates continued to move slightly lower with the 10-year AAA declining to 1.54% on 24 July. Muni/Treasury ratios fell significantly from their early July highs, validating optimism.
“Since the Treasury curve priced in a total of three Fed cuts by early next year, the current ratio curve suggests the muni curve has also largely priced in the Fed cuts,” the report said. “The cut next week is unlikely to generate much action for munis; rather, the Fed's forward looking statement against the recent economic data's strength will determine where rates and curves go.”
BofA Securities is scheduled to price the Texas Private Activity Bond Surface Transportation Corp.’s (Baa3/ /BBB-) $674.065 million of senior lien revenue bonds for the NTE Mobility Partners Segments 3 LLC Segment 3C Project on Tuesday.
Morgan Stanley is set to price San Francisco Bay Area Rapid Transit’s (Aaa/AAA/) $510.695 million of transit district general obligation green bonds also on Tuesday. There is also a $163.67 million taxable green bond portion that will also be priced on Tuesday.
JPMorgan Securities is expected to price Michigan Finance Authority’s $360.28 million of state aid revenue notes on Tuesday.
Wells Fargo is scheduled to price San Diego Association of Governments’ (NR/A-/NR) $331.3 million of capital grants receipts revenue green bonds for the mid-coast corridor transit project on Tuesday.
Munis were stronger in late trading on the MBIS benchmark scale, with yields falling by less than one basis point in the 10-year and by no more than two basis points in the 30-year maturities. High-grades were also stronger, with MBIS’ AAA scale showing yields falling by less than one basis point in the both 10- and 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GOs remained unchanged at 1.54% and 2.25%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 74.9% while the 30-year muni-to-Treasury ratio stood at 87.1%, according to MMD.
Treasuries were stronger as stocks were mixed. The Treasury three-month was yielding 2.105%, the two-year was yielding 1.850%, the five-year was yielding 1.837%, the 10-year was yielding 2.057% and the 30-year was yielding 2.584%.
"The political uncertainty in Puerto Rico continues. Last week Gov. Ricardo Rosselo announced his resignation. Over the weekend, next in line of succession, Justice Secretary Wanda Vazquez said she does not want the job," ICE Data Services said in a Monday market comment. "Puerto Rico bonds are up with the 8% GO bonds rising 1/2 point. The broader market is unchanged, waiting for the FOMC meeting on Tuesday and Wednesday."
Previous session's activity
The MSRB reported 24,555 trades Friday on volume of $7.262 billion. The 30-day average trade summary showed on a par amount basis of $10.72 million that customers bought $5.62 million, customers sold $3.18 million and interdealer trades totaled $1.92 million.
California, Texas and New York were most traded, with the Golden State taking 16.005% of the market, the Lone Star State taking 12.19% and the Empire State taking 11.627%.
The most actively traded security was the State of Georgia GO 3.05s of 2037, which traded 10 times on volume of $27.92 million.
Last week's actively traded issues
Revenue bonds made up 51.28% of total new issuance in the week ended July 26, up from 49.98% in the prior week, according to IHS Markit. General obligation bonds were 44.10%, down from 45.30%, while taxable bonds accounted for 4.62%, down from 4.72%.
Some of the most actively traded munis by type in the week ended July 26 were from Texas, Colorado and Illinois issuers, according to IHS Markit.
In the GO bond sector, the San Antonio Independent School District, Texas, 3s of 2049 traded 42 times.
In the revenue bond sector, the Colorado Health Facilities Authority 4s of 2043 traded 62 times. In the taxable bond sector, the Illinois 5.1s of 2033 traded 35 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, or contact Ziad Saba at 212-803-6079 for more information.