Municipal volume will remain near recent levels the week before the Memorial Day holiday, supported by rising investor demand and a continuing bond rally, market participants said.
Ipreo estimates volume will slip to $7.02 billion, after a revised total of $8.42 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead, which includes a half-day Friday, is composed of $5.59 billion of negotiated deals and $1.43 billion of competitive sales.
“The technicals are still good and I think that will continue for a bit longer,” said Robert Wimmel, head of municipal fixed income for BMO Global Asset Management. “The most important trend has been the bond rally, which was exacerbated this past week. Putting the White House policies in place is going to be more difficult than everyone thought previously.”
Wimmel said that while seasonality in munis is common, with June and July typically being heavy reinvestment periods, institutional and retail investors are back in the market, as concerns that lower tax rates may dilute the value of municipal bonds fade.
“Tax reform worries have all but gone away," he said. Based on early reports of President Trump's plans, "the personal tax percentage is not much of a drop, and most muni buyers aren’t in the top tax bracket anyway. And then on the corporate side I don’t think [President Trump] will be able to pass a 15% rate, it will be in the 20-25 percent range.”
A large chunk of the week’s issuance will come from one deal – The Hudson Yard’s Infrastructure Corp.’s $2.15 billion of second indenture revenue bonds. Goldman Sachs is set to run the book for institutions on Tuesday, after a two-day retail order period today and Monday.
The HYIC bonds were priced for retail on Friday to yield from 1.31% with 3% and 5% coupons in a split 2022 maturity to approximately 3.568% with a 3.5% coupon in 2038; a 2042 maturity was prices as 5s to yield 3.19% while a 2045 maturity was priced as 4s to yield 3.53%.
No retail orders were taken in the 2031, 2033-2035, 2039, 2041, 2044 or 2047 maturities. The deal is rated Aa3 by Moody’s Investors Service, A-plus by S&P Global Ratings and Fitch Ratings.
Just ahead of Friday’s pricing, S&P upgraded its rating on the HYIC’s outstanding Fiscal 2012 Series A first-indenture senior revenue bonds by two notches to AA-minus from A. S&P also assigned its A-plus rating to the current offering.
After that, there are 13 deals scheduled to price larger than $100 million, with the majority of the action squeezed into a two-day period Tuesday and Wednesday because of the abbreviated trading session on Friday ahead of Memorial Day weekend.
Bank of America Merrill Lynch is expected to price the New York University Hospitals Center’s $600 million of taxables. The deal is rated A3 by Moody’s and A-minus by S&P and Fitch.
“As long as interest rates are so low in other countries, taxables won’t be going away anytime soon,” Wimmel said. “When it comes to healthcare we have seen so much issuance in this sector. Seems like everyone is trying to get in before ... repeal and replacement. We won’t be talking about defaults or anything, but uncompensated care will be increasing if the Senate passes AHCA in some form, so it’s good to be a little cautious with this sector right now.”
Piper Jaffrey is scheduled to price the Mayor and City Council of Baltimore Convention Center Hotel, Md.’s $285.37 million of revenue refunding bonds on Wednesday. The deal is rated BBB-minus by S&P.
There are only two scheduled competitive deals larger than $100 million, with the largest coming from the San Francisco Municipal Transportation Agency’s $173.095 million of revenue bonds on Wednesday. The deal is rated Aa2 by Moody’s and AA by S&P.
Municipal bonds finished unchanged on Friday. The yield on the 10-year benchmark muni general obligation was steady from 2.01% on Thursday, while the 30-year GO yield was flat from 2.87%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were little changed on Friday. The yield on the two-year Treasury rose to 1.28% from 1.27% on Thursday as the 10-year Treasury yield gained to 2.24% from 2.23% while the yield on the 30-year Treasury bond increased to 2.91% from 2.90%.
The 10-year muni to Treasury ratio was calculated at 89.6% on Friday, compared with 90.0% on Thursday, while the 30-year muni to Treasury ratio stood at 98.8%, versus 98.7%, according to MMD.
Week's actively traded issues
Some of the most actively traded bonds by type in the week ended May 19 were from California, Louisiana and New York issuers, according to Markit.
In the GO bond sector, the Los Angeles Unified School District, Calif., 5s of 2027 were traded 58 times. In the revenue bond sector, the New Orleans Aviation Board, La., 5s of 2048 were traded 68 times. And in the taxable bond sector, the New York State Dormitory Authority 3.998s of 2039 were traded 32 times.
Week's actively quoted issues
Puerto Rico, New York and Illinois names were among the most actively quoted bonds in the week ended May 19, according to Markit.
On the bid side, the Puerto Rico Aqueduct and Sewer Authority revenue 5.25s of 2042 were quoted by 86 unique dealers. On the ask side, the New York Metropolitan Transportation Authority revenue 3.125s of 2033 were quoted by 154 unique dealers. And among two-sided quotes, the Illinois taxable 6.63s of 2035 were quoted by 24 unique dealers.
Lipper: Muni bond funds see inflows
Investors in municipal bond funds continued to put cash back into the funds in the latest week, according to Lipper data released late on Thursday.
The weekly reporters saw $426.721 million of inflows in the week ended May 10, after inflows of $605.731 million in the previous week.
The four-week moving average was still in the green at positive $326.188 million, after being positive at $292.065 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 also had inflows, gaining $280.582 million in the latest week after rising $355.772 million in the previous week. Intermediate-term funds had inflows of $5.202 million after inflows of $104.229 million in the prior week.
National funds had inflows of $443.455 million after inflows of $635.116 million in the previous week. High-yield muni funds reported inflows of $214.464 million in the latest reporting week, after inflows of $179.829 million the previous week.
Exchange traded funds saw inflows of $98.138 million, after inflows of $30.237 million in the previous week.