Recent taxable deals are contributing to a healthy municipal market overall.
The increase in taxable healthcare deals in the market this week and last are partially the result of issuers seeing an opportunity to take advantage of this issuer-friendly market and target new investors.
“It doesn’t make sense to come tax-exempt because of refundings, and there are infinitely more buyers in the taxable world for this product that continues to come attractive to other taxable and competing corporates,” according to a New York trader. "Some of the trading accounts have started to buy that structure and are trading it."
The market for larger taxable healthcare deals increases as market conditions remain healthy, according to the trader.
“If you made an argument on relative value there’s more value in the taxable space that the tax-exempt market has run so much,” he said. “You can make that argument.”
A relatively light calendar in the tax-exempt portion of the new-issue calendar and an abundance of money continues to narrow spreads and lower yields— albeit slowly, the trader noted.
“All the deals are doing very well and there continues to be positive flows that exacerbate this move,” he said. “Deals were repriced to lower yields, as some new deals are being 10-15 times oversubscribed.”
The continued flow of money into tax-exempt funds continues to impact spreads, according to the trader.
“There’s a ton of money flowing into tax-exempt funds and they continue to buy and chase too few bonds and spreads are contracting because of it,” he said. “The muni market is pretty healthy now — taxable and tax-exempt.”
“As long as Treasuries hang in there I don’t see any reason for our market to turn here.”
Primary market
JP Morgan priced Partners Healthcare System Inc.’s (Aa3/AA-/NR/NR) $1.004 billion of taxable corporate CUSIP for Mass General Brigham on Wednesday.
In the competitive market, Delaware (Aaa/AAA/AAA) sold $300 million of general obligation bonds on Wednesday. JP Morgan won with a true interest cost of 1.873%.
The Diamond State’s GOs were priced as 5s to yield from 0.86% in 2021 to 1.35% in 2031; the bonds in these maturities came in exactly on Refinitiv Municipal Market Data’s AAA benchmark scale.
The rest of the issue held various coupons and was priced to yield from 1.49% with a 4% coupon in 2032 (10 basis points above the MMD scale) to 2.50% at par (76 basis points above MMD) in 2040.
The 2032-2033 and 2039-2040 maturities were offered at a premium while the 2034-2038 maturities came at a discount.
“It looks as though they were experimenting with the couponing, the prices and the yields,” one market source said, noting that the longer and shorter maturities both sold out very quickly.
Bank of America Securities priced Northeast Ohio Regional Sewer District’s (Aa1/AA+/ ) $244.895 million of taxable wastewater improvement refunding revenue bonds.
Also in the competitive market, The University of Houston System Board of Regents (Aa2/AA/ ) sold a total of $478.025 million of consolidated revenue refunding and taxable bonds in two separate sales on Wednesday.
Bank of America Securities won $314.240 million of tax-exempt consolidated revenue refunding bonds with a TIC of 2.4639%.
Raymond James won $163.785 million of the taxable portion with a TIC of 2.7607%.
Secondary market
Munis were mixed on the MBIS benchmark scale, with yields falling by four basis points in the 10-year maturity and rising by two basis points in the 30-year maturity. High-grades were stronger with yields on MBIS AAA scale decreasing four basis points in the 10-year maturity and by four basis points in the 30-year maturity.
On the MMD benchmark scale, the yield on both the 10-year and 30-year were unchanged from 1.28% and 1.93%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 72.4% while the 30-year muni-to-Treasury ratio stood at 87.0%, according to MMD.
“The ICE muni yield curve is hovering around yesterday’s levels with some spots on the curve down one basis point,” ICE Data Services said in a Wednesday market note. “Activity in high-yield has picked up with that sector down one basis point. Taxables are staying within one basis point of yesterday’s levels. Puerto Rico is unchanged though the pre-2011 date GO bonds are down 1/8 point.”
Stocks were in the green and Treasury yields moved mostly lower.
The Dow Jones Industrial Average was up about 0.04%, the S&P 500 Index rose around 0.10% and the Nasdaq gained about 0.16%.
The Treasury three-month was yielding 1.561%, the two-year was yielding 1.526%, the five-year was yielding 1.572%, the 10-year was yielding 1.764% and the 30-year was yielding 2.216%.
ICI: Muni funds see $3.2B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $3.275 billion in the week ended Jan. 15, the Investment Company Institute reported on Wednesday.
It was the 54th straight week of inflows into the tax-exempt mutual funds. The previous week ended Jan. 8 saw $3.533 billion of inflows into the funds.
Long-term muni funds alone had an inflow of $2.618 billion after an inflow of $2.906 billion in the previous week; ETF muni funds alone saw an inflow of $656 million after an inflow of $627 million in the prior week.
Taxable bond funds saw combined inflows of $13.664 billion in the latest reporting week after revised inflows of $21.211 billion in the previous week.
ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $15.842 billion after inflows of $11.151 billion in the prior week.
Domestic Equity funds declined the most, falling $4.519 billion for the week after losing $13.134 billion in the prior week.
Previous session's activity
The MSRB reported 30,168 trades Tuesday on volume of $8.43 billion. The 30-day average trade summary showed on a par amount basis of $10.75 million that customers bought $5.49 million, customers sold $3.44 million and interdealer trades totaled $1.81 million.
New York, California and Texas were most traded, with the Empire State taking 13.559% of the market, the Golden State taking 12.914% and the Lone Star State taking 12.897%.
The most actively traded security was the Colorado Health Facilities Authority revenue taxable 3.796s of 2044, which traded eight times on volume of $33.590 million.
Chip Barnett 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.
