Issuers and investors are ready for busiest week of the year
Issuers are coming to market in droves this week as they try to take advantage of excellent market conditions and get deals done before upcoming holiday shortened week.
According to Patrick Luby, senior municipal strategist at CreditSights, this week's new issue calendar exceeds $10 billion — and will be the largest week of the year — and $2 billion of it is expected to come as taxables.
“Tax-exempt municipal bond yields are generally unattractive to corporate investors subject to the 21% federal income tax rate," Luby said. "For example, 10-year A-rated yield curves show a 38 pick up in after-tax yield by favoring taxable municipals over tax-exempts.”
He added that for individual investors in the maximum federal income tax bracket of 37%, tax-exempt municipal bond yields are competitive with the after-tax yields on corporates and taxable municipal bonds.
“The exception is the short end of the BBB-rated part of the market where investors may find taxable municipal bonds yields to be attractive,” Luby said.
There are an estimated $8.33 billion of new deals this week, with the action coming fast and furious as the two biggest deals will hit a stronger market on Tuesday and Wednesday.
The Grand Parkway Transportation Corporation, Texas is set to bring $1.51 billion of tax-exempt and taxable bonds on Tuesday.
“There is an imbalance of supply and demand in Texas, caused by the volume of February 15th redemptions,” a Texas trader said.
“We are kind of in a drought here, in terms of bonds,” the trader said. “The big deal Tuesday will be much needed and wanted. I am guessing it will go very quickly.”
Goldman will run the books on the first tier toll revenue refunding tax-exempt series 2020C portion, while Bank of America Securities is expected to $45.38 million of first tier toll revenue refunding taxable bonds series 2020A and the subordinate tier toll revenue refunding taxable bonds series 2020B. The first tier bonds carry ratings of A2 by Moody’s Investors Service, while the taxable subordinate bonds are rated Aa1 by Moody’s and AA by Fitch.
Wells Fargo is slated to price Utah’s (Aaa/AAA/AAA/NR) $449.625 million of GO bonds on Tuesday.
Munis were stronger Monday on the MBIS benchmark scale, with yields falling by one basis point in the 10-year maturity and two basis points in the 30-year maturity. High-grades were also stronger, with yields on MBIS AAA scale decreasing one basis point in both the 10- and 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10-year GO and 30-year GO were unchanged from 1.18% and 1.83%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 74.2% while the 30-year muni-to-Treasury ratio stood at 89.6%, according to MMD.
Stocks moved higher as Wall Street were upbeat about positive corporate earnings, while Treasuries were sharply lower.
The Dow Jones Industrial Average was up about 0.40%, the S&P 500 Index lost gained 0.44% and the Nasdaq rose about 0.89%.
The 3-month Treasury was yielding 1.561%, the Treasury two-year was yielding 1.383%, the five-year was yielding 1.368%, the 10-year was yielding 1.548% and the 30-year was yielding 2.023%.
Last week’s actively traded issues
According to IHS Markit, revenue bonds made up 53.88% of total new issuance in the week ended Feb. 7, down from 54.09% in the prior week. General obligation bonds were 41.41%, up from 40.86%, while taxable bonds accounted for 4.71%, down from 5.05%.
Some of the most actively traded munis by type in the week were from New York, Texas and Puerto Rico issuers, according to IHS Markit.
In the GO bond sector, the New York City zeros of 2042 traded 31 times. In the revenue bond sector, the Gulf Coast Industrial Development Authority, Texas, 3s of 2041 traded 29 times. In the taxable bond sector, the GDB Debt Recovery Authority of Puerto Rico, 7.5s of 2040 traded 18 times.
Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the $45 billion of three-months incurred a 1.550% high rate, unchanged from 1.550% the prior week, and the $39 billion of six-months incurred a 1.510% high rate, down from 1.520% the week before.
Coupon equivalents were 1.582% and 1.547%, respectively. The price for the 91s was 99.608194 and that for the 182s was 99.236611.
The median bid on the 91s was 1.520%. The low bid was 1.480%.
Tenders at the high rate were allotted 2.29%. The bid-to-cover ratio was 3.01.
The median bid for the 182s was 1.480%. The low bid was 1.450%.
Tenders at the high rate were allotted 66.86%. The bid-to-cover ratio was 3.56.
Previous session's activity
The MSRB reported 28,021 trades Friday on volume of $10.28 billion. The 30-day average trade summary showed on a par amount basis of $11.14 million that customers bought $5.65 million, customers sold $3.65 million and interdealer trades totaled $1.84 million.
California, Texas and New York were most traded, with the Golden State taking 16.706% of the market, the Lone Star State taking 14.494% and the Empire State taking 12.807%.
The most actively traded security was the Port Authority of Greater Cincinnati, revenue, 3s of 2023, which traded 15 times on volume of $35.515million.
Gary E. 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.