'It's about time': Munis to see $12.6B in busiest week of year
The wait is over. After seven months without seeing one week of double-digit issuance, municipal bond investors will finally get a supply surge.
There is an estimated $12.6 billion of new issuance slated for the upcoming week, with 32 deals scheduled $100 million or larger, 9 of which are competitive sales. There are also three deals with an expected par amount exceeding $1 billion.
It will be the largest issuance week of 2019, with the previous biggest week taking place the week of June 10, when volume was roughly $9.87 billion.
“Next week’s calendar is up to $12.6 billion — and all I can say is that it’s about time,” Fiera Capital’s senior vice president and portfolio manager Ken Potts told The Bond Buyer. “We’ve really needed supply and the market has been starved for more bonds, particularly on the front end out to the 10- to 15-year range.” He said the shorter bonds are actually richer than 10- to 15-year securities.
He said the increase in volume was a big positive for the market, especially for buyers of New York paper since there has been a scarcity amid high demand for state and city issuance so far this year.
Although Lipper saw inflows again, inflows were much lighter than what we have been seeing recently but Jim Colby, senior municipal strategist and portfolio manager at VanEck, does not see this single week’s number as a signal of any sort.
“By many metrics we are still an attractive asset, and who doesn’t like tax-free anything?” he said. “It appears that demand is spread through both high-yield and investment grade, suggesting that elevated supply might offer only a temporary respite. It is hard to tell but I think deals will do well.”
Citi is scheduled to price CommonSpirit Health’s (Baa1/BBB+/BBB+) $5.1 billion of tax-exempt fixed rate bonds, tax-exempt hard put bonds and taxable bonds on Wednesday. CommonSpirit will issue $2.7 billion of taxable series 2019 bonds directly and the $2.4 billion series 2019A tax-exempt fixed rate bonds and $665 million series 2019B tax-exempt put bonds will be issued by conduits in Colorado, Kentucky, Tennessee and Washington.
Goldman Sachs is expected to price the Port Authority of New York and New Jersey’s (Aa3/AA-/AA-) $1.25 billion of consolidated taxable, tax-exempt and alternative minimum tax bonds on Wednesday.
JPMorgan is slated to run the books on Dallas Fort Worth International Airport’s (A1/A+/A+/AA) $1.17 billion of joint revenue refunding taxable bonds on Tuesday.
Goldman is also scheduled to price the Lower Alabama Gas District’s (A3/NR/A) $639.76 million of revenue bonds.
In the competitive arena, New York City Transitional Finance Authority is expected to sell a total of $1.35 billion of future tax-secured subordinate bonds and taxable bonds spanning five separate sales on Tuesday.
Minnesota (Aa1/AAA/AAA) is scheduled to sell a total of $673.345 million of bonds in a total of four separate sales, also on Tuesday.
Lipper: More inflows into muni funds
For 30 straight weeks investors have poured cash into municipal bond funds, according to data from Refinitiv Lipper. Tax-exempt mutual funds that report weekly received $433.609 million of inflows in the week ended July 31 after inflows of $1.956 billion in the previous week.
Looking at the Lipper numbers, Potts said that while the falloff in inflows was pretty dramatic, it was not unexpected.
“From a seasonal perspective, it’s the tail-end of the summer re-investment season,” Potts said, who added that while the record flows are expected to taper off, significantly lower rates could slow that trend .
It was the smallest inflow since the week of June 12, when investors put in $778.412 million. The smaller inflow this past week also ended the streak of five weeks in a row were inflows exceed $1 billion.
“I cannot recall a longer, uninterrupted stretch of weeks with positive inflows,” Colby said. “I do believe that these are a lagging set of data, so we have the 4th of July, leading into the beginning of vacations, perhaps muting activity and giving us a lower amount of dollars committed.”
Exchange-traded muni funds reported inflows of $41.597 million after inflows of $256.385 million in the previous week.
Ex-ETFs, muni funds saw inflows of $392.011 million after inflows of $1.700 billion in the previous week.
The four-week moving average remained positive at $1.266 billion, after being in the green at $1.463 billion in the previous week.
Long-term muni bond funds had inflows of $296.280 million in the latest week after inflows of $1.181 billion in the previous week. Intermediate-term funds had inflows of $91.159 million after inflows of $317.712 million in the prior week.
National funds had inflows of $307.270 million after inflows of $1.724 billion in the previous week. High-yield muni funds reported inflows of $87.648 million in the latest week, after inflows of $510.652 million the previous week.
Munis were much stronger in late trading on the MBIS benchmark scale, with yields falling five basis points in both the 10- and 30-year maturities. High-grades were also stronger, with MBIS’ AAA scale showing yields lowering by three basis points in the 10-year and by four basis points in the 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year was lower by four basis points and the 30-year GO yield dropped five basis points from 1.44% and 2.14%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 77.5% while the 30-year muni-to-Treasury ratio stood at 89.4%, according to MMD.
Treasury yields continued to drop and stocks sank on trade fears. The Treasury three-month was yielding 2.059%, the two-year was yielding 1.722%, the five-year was yielding 1.675%, the 10-year was yielding 1.861% and the 30-year was yielding 2.395%.
After a busy week where municipals underperformed and supply was brisk on the heels of the Federal Reserve Board rate cut and Treasury volatility, municipal investors are taking a breather before the arrival of next week’s $12 billion new-issue bounty.
“We’ve seen a big move in the market in the last 48 hours, munis caught up today after underperforming during the week,” a New York trader at a large firm said Friday afternoon.
With ratios of municipals to Treasuries on the long end in the 90% range, and much tighter in the short-end of the curve, investors are looking forward to next week’s volume for some yield.
“A good chunk of it is a large health care transaction and with everyone looking for incremental yield, I am sure it will get done OK,” he said, of the $1.6 billion Colorado Health Facilities Authority revenue sale expected to be priced by Citigroup in the negotiated market next week.
He noted that investors are waiting on the sidelines with available cash — hoping not to get further spooked by all the geopolitical cross-currents and political tension the market.
“There is money around and that bodes well for the market, but who knows on the China front, who knows what will happen in a Tweet at 5 p.m.,” he said, pointing to a lot of political and market “disarray.”
“At these very low rates people are reluctant to play in the market anyway — and throw in a reasonable amount of volatility and it’s a bit nerve-wracking,” he said.
“Investors are sitting on money, and trying to be patient, but with an 18 basis point move in Treasuries that freaks people out a little bit,” he added.
Despite the cross-currents, however, he said the market is predisposed to go to lower rates and will remain in its current trading range— -barring “anything crazy over the weekend on the trade front.”
“If a trade deal were struck there would be a reversal, but I’m not thinking that will happen in the next four to six days, yet alone the next four to six months and will continue hanging over the market,” he said.
On the retail front, he said the availability of 3% coupons trading at a premium on the long end in recent deals aren’t sitting well with mom and pop investors — and could spook them out of the market.
“Unless they want to coupon down to 2 ¾%, which I believe is ugly for them, we won’t have that dynamic in the market and retail won’t be a real player here,” he added.
Previous session's activity
The Municipal Securities Rulemaking Board reported 33,551 trades Thursday on volume of $13.438 billion. The 30-day average trade summary showed on a par amount basis of $10.68 million that customers bought $5.58 million, customers sold $3.15 million and interdealer trades totaled $1.96 million.
California, Texas and New York were most traded, with the Golden State taking 15.744% of the market, the Lone Star State taking 15.037% and the Empire State taking 12.434%.
The most actively traded security was the Texas Private Activity Bond Surface Transportation Corp., 5s of 2058, which traded 19 times on volume of $64.37 million.
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.