Lots of muni supply in a short week as market to see $7.6B bonds, $1B+ notes
For a normally dead holiday-shortened week, there sure is a lot of municipal supply on tap. Muni market participants will see a hefty bond slate complemented by a $1 billion note sale in the competitive sector.
IHS Markit Ipreo forecasts weekly bond volume will rise to $7.6 billion from a revised total of $6.8 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $5.3 billion of negotiated deals and $2.3 billion of competitive sales.
Topping the slate is California’s (Aa3/AA-/AA) $2.3 billion general obligation deal consisting of $1.65 million of various purpose refunding GOs and $650 million of various purpose GOs coming to market on Thursday.
Jefferies, Stifel and Ramirez are lead managers. Co-manager include 280 Securities, Academy Securities, Barclays, BofA Securities, Blaylock Van, BNY Mellon Capital Markets, Cabrera Capital Markets, Caldwell Sutter Capital, Citigroup, D.A. Davidson, FTN Financial Capital Markets, George K. Baum, Goldman Sachs, JPMorgan Securities, Mesirow Financial, Mischler Financial Group, Morgan Stanley, Piper Jaffray, Raymond James, RBC Capital Markets, TD Securities, The Williams Capital Group, UBS, U.S. Bancorp Investments, and Wells Fargo Securities. PRAG is the financial advisor; Orrick is the bond counsel. As we reported last week, the state dropped IFS Securities as an underwriter on this deal after allegations of improprieties recently emerged about a principal whose off-book trades drained the firm’s capital and triggered regulatory and criminal probes.
In mid-August, Fitch Ratings upgraded the state's general obligation bonds to AA from AA-minus. Fitch said the upgrade "reflects the improved fiscal management that has become institutionalized across administrations, which in Fitch's view allows it to better withstand economic and revenue cyclicality." The outlook is stable.
After a successful sale of more than $1 billion of tax-exempt and taxable refunding bonds the previous week, Massachusetts (Aa1/AA/AA+) will return with a $600 million GO bond issue. Morgan Stanley is expected to price the Series G consolidated loan of 2019 GOs on Thursday.
And the Chicago Board of Education (NR/BB-/BB/BBB) will offer $370 million of dedicated revenues unlimited tax GO refunding bonds backed by dedicated revenues.
JPMorgan Securities is set to price the bonds on Thursday; Mesirow Financial is a lead manager. Co-managers include: Loop Capital Markets, Cabrera Capital Markets, Citigroup, Goldman Sachs, Estrada Hinojosa, Morgan Stanley, Siebert Cisneros Shank, Rice Financial Products, Wells Fargo Securities and Valdés & Moreno. PFM and Public Alternative Advisors are the financial advisors. Katten Muchin Rosenman and Charity & Associates are the bond counsel.
For those who like it out long, there is a 100-year bond up for grabs. Barclays is slated to price the University of Virginia's (Aaa/AAA/AAA) $350 million of taxable Series 2019A general revenue pledge bonds due 2119.
And for those who like it shorter, the New York Metropolitan Transportation Authority will competitively sell $1 billion of Series 2019D-1 transportation revenue bond anticipation notes on Wednesday. The BANs are due Sept. 1, 2022. Public Resources Advisory Group and Backstrom McCarley Berry are the financial advisors. Nixon Peabody and D Seaton & Associates are the bond counsel.
On Thursday, North Carolina (Aaa/AAA/AAA) will sell $600 million of Series 2019B public improvement GOs under the Connect N.C. program. Hilltop Securities and the Local Government Commission are the financial advisors. Womble Bond is the bond counsel.
Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, said that September will be off to a good start.
"Even with the supply surge we saw here in August, the muni market does not feel like it is oversupplied by any means," he said. "The muni curve on the long end could flatten even more and the yield curve inversion and Treasury yields have made some part of the muni curve more attractive on a relative basis."
He added that with munis becoming increasingly attractive on the long end, plus a good amount of cash waiting to be put to work, the muni bond boom should continue for the foreseeable future.
“I still think there is plenty of cash waiting to get put to work,” he said. “The supply/demand picture could get more unbalanced, with yields lower now, you should see issuers start to come to market more.”
Other players expect good demand upon return from Labor Day.
“Most of the larger deals are from high tax states and we see no abatement of demand,” said John Donaldson of Haverford Trust. “I think a large number of investors will be doing what we will be doing on Tuesday morning: checking on exactly how many dollars hit client accounts from bonds called as of Sept. 1."
While there may be some “sticker shock” from low yields, Donaldson noted, the demand side of the equation will still drive the market with new deals getting strong attention amid September redemptions.
Lipper: More inflows into muni funds
For 34 weeks in a row investors have poured cash into municipal bond funds, according to the latest data released by Refinitiv Lipper on Thursday.
Tax-exempt mutual funds that report weekly received $1.536 billion of inflows in the week ended Aug. 28 after inflows of $1.562 billion in the previous week.
Exchange-traded muni funds reported inflows of $291.351 million after inflows of $208.725 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.245 billion after inflows of $1.353 billion in the previous week.
The four-week moving average remained positive at $1.769 billion, after being in the green at $1.493 billion in the previous week.
Long-term muni bond funds had inflows of $1.213 billion in the latest week after inflows of $1.080 billion in the previous week. Intermediate-term funds had inflows of $152.656 million after inflows of $304.494 million in the prior week.
National funds had inflows of $1.347 billion after inflows of $1.356 billion in the previous week. High-yield muni funds reported inflows of $410.496 million in the latest week, after inflows of $479.355 million the previous week.
On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.074 billion in the week ended Aug. 21, while long-term muni funds alone saw an inflow of $1.805 billion and ETF muni funds saw an inflow of $269 million.
Munis were mixed on the MBIS benchmark scale, with yields rising by less than one basis point in the 10-year maturity and falling by less than a basis point in the 30-year maturity. High-grades were stronger, with MBIS’ AAA scale showing yields falling less than one basis point in the 10-year maturity and rising one basis point in the 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10- and 30-year year muni GOs were steady at 1.22% and 1.84%, respectively.
The 10-year muni-to-Treasury ratio was calculated at 81.2% while the 30-year muni-to-Treasury ratio stood at 93.7%, according to MMD.
Treasuries were weaker as stocks traded little changed. The Treasury three-month was yielding 1.987%, the two-year was yielding 1.528%, the five-year was yielding 1.409%, the 10-year was yielding 1.520% and the 30-year was yielding 1.983%.
Previous session's activity
The MSRB reported 31,481 trades Thursday on volume of $10.21 billion. The 30-day average trade summary showed on a par amount basis of $11.04 million that customers bought $5.84 million, customers sold $3.16 million and interdealer trades totaled $2.04 million.
Texas, California and New York were most traded, with the Lone Star State taking 13.743% of the market, the Golden State taking 13.523% and the Empire State taking 12.064%.
The most actively traded security on Thursday was the Illinois 2003 GO 5.1s of 2033, which traded 34 times on volume of $49.62 million.
Week's actively traded issues
Some of the most actively traded munis by type in the week ended Aug. 30 were from Texas and Massachusetts issuers, according to IHS Markit.
In the GO bond sector, the Houston 1.95s of 2024 traded 31 times. In the revenue bond sector, the Texas TRANs 4s of 2020 traded 97 times. In the taxable bond sector, the Massachusetts 2.663s of 2039 traded 52 times.
Week's actively quoted issues
Florida, New York and New Jersey, and California names were among the most actively quoted bonds in the week ended Aug. 30, according to IHS Markit.
On the bid side, the Capital Travel Agency, Florida, 4 revenue 5s of 2043 were quoted by 49 unique dealers. On the ask side, the Port Authority pof New York and New Jersey revenue 4s of 2037 were quoted by 146 dealers. Among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 12 dealers.
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.