Indianapolis Bond Bank, Cal deals price; money market funds see outflows

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Municipal bonds remained stronger on Thursday as deals from Indianapolis and two California issuers came to market.

Secondary market
Municipal bonds continued to show strength a day after the Federal Reserve left interest rates unchanged.

Munis were solidly stronger on the MBIS benchmark scale, which showed yields falling seven basis points in the 10-year maturity and three basis points in the 30-year maturity. High-grade munis were also stronger, with yields dropping eight basis points in the 10-year maturity and three basis points in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO muni falling five basis points to drop below the 2% level while the yield on the 30-year muni fell six basis points.

The 10-year muni-to-Treasury ratio was calculated at 77.6% while the 30-year muni-to-Treasury ratio stood at 92.3%, according to MMD.

Treasuries were weaker as stocks traded higher.

“The ICE Muni Yield Curve is over six basis points lower in yield in the 30-year maturities,” ICE Data Services said in a market comment. “The 10-year is five basis points lower as well. The high-yield sector is following, but lagging, with yields down two basis points through the 10-year and down three basis points in the longer end. Tobaccos are following suit. The taxable market is one basis point lower in yield in the 10-year maturities."

Previous session's activity
The MSRB reported 39,974 trades Wednesday on volume of $11.60 billion. California, Texas and New York, California and Texas were most traded, with the Golden State taking 13.549% of the market, the Lone Star State taking 12.415% and the Empire State taking 12.074%. The most actively traded issue was the Puerto Rico COFINA restructured Series 2018 A-1 revenue 5s of 2058 which traded 109 times on volume of $60.72 million.

Primary market
BofA Securities priced the Indianapolis Local Public Improvement Bond Bank's (Aa1/NR/AAA) $611.39 million of Series 2019A community justice campus bonds for its courthouse and jail project and $14.8 million of Series 2019B community justice campus bonds for its assessment and intervention center project.

Underwriters held a one-day retail order period on Wednesday during which sources said demand was brisk with more than $218 million of orders with about $53 million in in-state orders and around $162 million in national retail orders.

Goldman Sachs priced the California Educational Facilities Authority’s (Aaa/AAA/AAA) $441.83 million of Series V-1 revenue bonds for Stanford University.

Academy Securities priced California’s Department of Veterans Affairs (Aa3/AA/AA-) $78.22 million of Series 2019A home purchase non-AMT revenue bonds for institutions.

Academy, released a premarketing scale on the deal on Tuesday and then offered the bonds to retail investors on Wednesday.

“The financing was very well received by both retail and institutional investors,” said Rick Kolman, head of the municipal securities group at Academy. “We were able to take advantage of a strong Treasury market and lower the yields on a majority of the maturities during the institutional pricing.”

The deal was the largest ever senior managed by a military-disabled veteran owned investment bank, the firm said.

Bond sales

Click here for the Indiana Bond Bank sale

Click here for the Cal EFA Stanford deal

Click here for the Cal Vets institutional pricing

Click here for the Cal Vets retail pricing

Click here for the Cal Vets premarketing scale

Bond Buyer 30-day visible supply at $7.76B
The supply calendar rose $159.7 million to $7.76 billion Thursday, composed of $4.55 billion of competitive sales and $3.20 billion of negotiated deals.

Muni money market funds see outflows
Tax-free municipal money market fund assets decreased $49.5 million, lowering their total net assets to $139.49 billion in the week ended March 18, according to the Money Fund Report, a service of iMoneyNet.com.

The average seven-day simple yield for the 190 tax-free and municipal money-market funds slipped to 1.19% from 1.24% last week.
Taxable money-fund assets lost $39.83 billion in the week ended March 19, bringing total net assets to $2.892 trillion.

The average, seven-day simple yield for the 806 taxable reporting funds was slightly higher to 2.07% from 2.06% last week.

Overall, the combined total net assets of the 996 reporting money funds fell $39.88 billion to $3.031 trillion in the week ended March 12. It marks the 11th consecutive week total money-fund assets have exceeded $3 trillion.

On Wednesday, the Investment Company Institute reported that long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.515 billion in the week ended March 13. Long-term muni funds alone saw an inflow of $2.040 billion while ETF muni funds saw an inflow of $475 million.

Poised for performance
If volume and issuance reverses and ratios backup from their current lows, there may be some compelling strategies and entry points in the municipal market, according to Jeffrey Lipton, managing director and head of municipal research and strategy and municipal capital markets at Oppenheimer & Co. Inc.

“Still favorable borrowing terms may move muni supply figures intermittently higher throughout the year, especially if rates continue lower,” Lipton wrote in a Wednesday report. “With a little over one week left for the month, munis may exceed our initial performance expectations for the quarter.”

Muni fund flows are likely to exhibit less volatility compared to last year and show a more pronounced positive bias, he said.

Heading into the typical summer technicals, muni outperformance — and maybe even richer ratios — could form “a stronger grip” given the typically lighter new-issue calendars and the greater reinvestment needs, especially June 1 and July 1, due to coupon payments, principal maturities and bond redemptions.

“This summer may be underscored by not only a net-negative supply backdrop, but also by scarcity value, which may promote even heavier inflows,” Lipton said.

On the tax reform front, Lipton said the market is now focusing on repositioning and making smart municipal allocations on the heels of the uncertainty of tax-reform in 2019.

“More predictable patterns of buyer preferences with stronger price discovery is returning this year after a lack of technical normalization took hold in much of 2018,” Lipton explained.

Heavy reinvestment demand continues, he noted, citing Bloomberg data, however volume is not exactly cooperating.

Aggregate calls and maturities in the next 30 days are about $16.88 billion, while total fixed-rate supply over the same period is about $6.64 billion, resulting in net supply of negative $10.24 billion, Lipton said.

“California and New York are showing the largest reinvestment needs over the next 30 days and we suspect that in-state bonds from these two states could grow visibly richer,” he said.

“We are seeing that in high-priced zip codes, the $10,000 SALT cap is having limited benefit to the taxpayer and so high net-worth residents in these areas should be more compelled to acquire the muni tax-advantage.".

Overall, Lipton expects the municipal market to be in a good place and “is poised to hang there for a while.”

“We have every reason to be sanguine on our outlook for the remaining quarters of 2019 and anticipate that munis will finish the year with returns of 3% to 5%,” Lipton said. “But, of course, we must be mindful that any unexpected Central Bank move could undermine momentum and jeopardize performance.”

Treasury auctions announced
The Treasury Department announced these auctions:

  • $18 billion 1-year 10-month 0.115% floating rate notes selling on March 27;
  • $32 billion seven-year notes selling on March 28;
  • $41 billion five-year notes selling on March 27;
  • $40 billion two-year notes selling on March 26;
  • $26 billion 364-day bills selling on March 26;
  • $39 billion 182-day bills selling on March 25; and
  • $48 billion 91-day bills selling on March 25.

Treasury auctions bills
The Treasury Department Thursday auctioned $60 billion of four-week bills at a 2.470% high yield, a price of 99.807889. The coupon equivalent was 2.516%. The bid-to-cover ratio was 2.30.

Tenders at the high rate were allotted 4.45%. The median rate was 2.425%. The low rate was 2.380%.

Treasury also auctioned $35 billion of eight-week bills at a 2.420% high yield, a price of 99.623556. The coupon equivalent was 2.470%. The bid-to-cover ratio was 2.89.

Tenders at the high rate were allotted 27.24%. The median rate was 2.400%. The low rate was 2.370%.

Treasury sells TIPs
The Treasury Department sold $11 billion of inflation-indexed 9-year 10-month TIPs at a 0.578% high yield, an adjusted price of 102.484664, with a 7/8% coupon. The bid-to-cover ratio was 2.43.

Tenders at the market-clearing yield were allotted 39.55%. Among competitive tenders, the median yield was 0.518% and the low yield 0.464%, Treasury said.

Gary Siegel contributed to this report.

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.

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Primary bond market Secondary bond market Municipal bond funds Indianapolis Local Public Improvement Bond Bank California Educational Facilities Authority State of California State of Texas State of New York Puerto Rico Sales Tax Financing Corp (COFINA)
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