Illinois issuers top calendar as tax reform cloud hangs over muni market
The municipal market will get another healthy dose of issuance in the final full week before Thanksgiving. The calendar is chock full of deals from Illinois, as all issuers look to price bonds before the tax laws change.
On Thursday, a tax reform bill was passed by the House Ways and Means Committee by a vote of 24 to 16 on Thursday that would reduce issuance after this year by eliminating tax-exempt private activity and stadium bonds and barring advance refundings. While a Senate version of tax reform outlined later that day would spare private activity bonds, advance refundings are still in the crosshairs of lawmakers of both houses of Congress.
The calendar for the week shows 14 negotiated deals that are scheduled for $100 million or larger, with three of the top four coming from Illinois issuers.
“It will be an Illinois dominated week of sales,” said Alan Schankel, managing director and municipal strategist at Janney. “Given the low volume year so far, enhanced by potential for diminished future tax free volumes if House version of tax reform becomes law, I expect solid demand for all three Illinois issuers next week.”
JPMorgan is scheduled to price Chicago’s Board of Education’s $922.33 million of dedicated capital improvement tax and unlimited tax general obligation with dedicated revenue bonds. The CIT bonds are expected to price on Wednesday and are rated A by Fitch Ratings. The GO bonds are expected on Thursday and are rated B by S&P Global Ratings and BB-minus by Fitch.
“Chicago CPS should see strong interest from yield seekers,” Schankel said. “I will be particularly interested to see how the smaller capital improvement tax backed piece fares with its extra security enhancement and stronger rating from Fitch.”
Citi is slated to price the Metropolitan Pier and Exposition Authority’s $475 million of McCormick Place expansion project bonds and refunding bonds on Tuesday. The deal is rated BB-plus by S&P and BBB-minus by Fitch.
“Met Piers, rated AAA by S&P before Illinois fiscal impasse brought on downgrades beginning in 2015, should be well received since supporting revenues are strong, with primary risk being appropriation,” Schankel said.
Barclays is scheduled to price New York City Municipal Water Finance Authority’s $400 million of water and sewer system second general resolution revenue bonds on Tuesday after a one-day retail order period. The deal is rated Aa1 by Moody’s Investors Service and AA-plus by S&P and Fitch.
Loop Capital is expected to price Illinois State Toll Highway Authority’s $300 million of toll senior revenue bonds on Wednesday. The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch.
“Illinois Tolls will capture attention of Illinois investors looking for diversification from tax backed state and local Illinois bonds,” said Schankel.
The biggest competitive sale on the docket hails from the Pacific Northwes, as Washington State plans to sell $505.81 million of various purpose GO refunding bonds on Tuesday. The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
The State of Wisconsin is slated to sell $277.71 million of GO bonds. The deal is rated AA-plus by Fitch.
Municipal bonds ended substantially weaker on Friday as market participants evaluated the differences between the newly released Senate tax reform proposal with the House version.
The yield on the 10-year benchmark muni general obligation rose five basis points to 1.98% from 1.93% on Thursday, while the 30-year GO yield rose six basis points to 2.68% from 2.62%, according to a read of Municipal Market Data's triple-A scale.
U.S. Treasuries were also weaker on Friday. The yield on the two-year Treasury rose to 1.65% from 1.63%, the 10-year Treasury yield gained to 2.40% from 2.33% and the yield on the 30-year Treasury increased to 2.88% from 2.81%.
On Friday, the 10-year muni-to-Treasury ratio was calculated at 82.6% compared with 83.0% on Wednesday, while the 30-year muni-to-Treasury ratio stood at 93.1% versus 93.5%, according to MMD.
AP-MBIS 10-year muni at 2.260%, 30-year at 2.784%
The Associated Press-MBIS municipal non-callable 5% GO benchmark scale was weaker in late trade.
The 10-year muni benchmark yield rose to 2.260% on Friday from the final read of 2.244% on Thursday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The AP-MBIS 30-year benchmark muni yield gained to 2.784% from 2.757%.
The AP-MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.
Week's actively traded issues
Some of the most actively traded bonds by type in the week ended Nov. 10 were from California, Virginia and Texas issuers, according to Markit.
In the GO bond sector, the San Diego Unified School District, Calif., 4s of 2047 were traded 39 times. In the revenue bond sector, the Virginia Small Business Financing Authority 5s of 2056 were traded 97 times. And in the taxable bond sector, the University of Texas 3.376s of 2047 were traded 39 times.
Week's actively quoted issues
Puerto Rico, New Jersey and Illinois names were among the most actively quoted bonds in the week ended Nov. 10, according to Markit.
On the bid side, Puerto Rico Commonwealth GO 5s of 2041 were quoted by 54 unique dealers. On the ask side, New Jersey Turnpike Authority revenue 5s of 2043 were quoted by 205 dealers. And among two-sided quotes, Illinois taxable 5.1s of 2033 were quoted by 28 unique dealers.
Lipper: Muni bond funds see inflows
Investors in municipal bond funds reversed course and put cash back into the funds in the latest week, according to Lipper data released late Thursday.
The weekly reporters saw $463.044 million of inflows in the week of Nov. 8, after outflows of $654.999 million in the previous week.
Exchange traded funds reported inflows of $35.922 million, after outflows of $149.284 million in the previous week. Ex-ETFs, muni funds saw $427.122 million of inflows, after outflows of $505.715 million in the previous week.
The four-week moving average was positive at $151.552 million, after being in the green at $46.685 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 $315.728 million in the latest week after outflows of $635.982 million in the previous week. Intermediate-term funds had inflows of $100.973 million after outflows of $835.000 million in the prior week.
National funds had inflows of $462.979 million after outflows of $221.241 million in the previous week.
High-yield muni funds reported inflows of $206.612 million in the latest week, after outflows of $81.357 million the previous week.
Data appearing in this article from Municipal Bond Information Services, including the AP-MBIS municipal bond index, is available on the Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.