Low Supply Week Should Be Met With Strong Demand

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Municipal market participants will be more than ready to deal with another light calendar, as some uncertainty that was surrounding the market about interest rates has now subsided, helping to strengthen demand.

Ipreo estimates volume will inch up to $4.5 billion, from a revised total of $4.35 billion in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $2.94 billion of negotiated deals and $1.56 billion of competitive sales. There are only 10 scheduled sales larger than $100 million next week and there are no sales larger than $600 million.

"There is a much better tone to the market -- not that it has been bad as the market for munis has been above the other markets -- but now it will have even more confidence," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "As we continue to have a lack of supply, pressure to get funds invested will only get greater, but demand should increase now that the Fed is out of the way for the time being."

Heckman said that strong demand for the 'right' issues will continue and he doesn't see that changing anytime soon.

In terms of the lack of volume, Heckman added that a few things would need to happen in order for the market to start consistently seeing $10 billion-plus in weekly volume.

"We would need to see a rally in Treasuries in combination with more transparency in regards to infrastructure and tax reform from the new administration," he said. "Until those dynamics get lined up and we have more clarity, I don't think we will get those tall waves of supply."

Bank of America Merrill Lynch is scheduled to price the largest deal of the week - the New York State Environmental Facilities Corporation's $594 million of top-rated of state clean water and drinking water revolving fund revenue bonds. The New York City Municipal Water Finance Authority second resolution subordinate bonds are set to sell on Tuesday and are rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings.

Goldman Sachs is scheduled to price the state of Oregon Department of Administrative Services' $239.315 million of state lottery revenue bonds on Wednesday following a one day retail order period. The deal is expected to have a taxable portion as well as tax-exempts and is rated Aa2 by Moody's and triple-A by S&P.

BAML is also expected to price the North Carolina Turnpike Authority's $230 million of triangle expressway system senior lien turnpike revenue refunding bonds on Wednesday. The deal is rated triple-B by S&P and BBB-minus by Fitch.

In the competitive arena, Louisiana is on the docket to sell $189.115 million of general obligation bonds on Wednesday. The deal is rated Aa3 by Moody's and AA-minus by S&P and Fitch.

Secondary Market

Top-shelf municipal bonds closed the week out stronger on Friday, as the 10-year benchmark muni general obligation yield was two basis points lower to 2.40% from 2.42% on Thursday, while the yield on the 30-year GO was also down two basis points to 3.18% lower from 3.20%, according to a final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were stronger on Friday at the market close. The yield on the two-year Treasury was down to 1.32% from 1.33% on Thursday, while the 10-year Treasury yield dipped to 2.50% from 2.53%, and the yield on the 30-year Treasury bond decreased to 3.11% from 3.14%.

On Friday, the 10-year muni to Treasury ratio was calculated at 96.0%, compared with 95.8% on Thursday, while the 30-year muni to Treasury ratio stood at 102.2%, versus 101.9%, according to MMD.

Week's Most Actively Traded Issues

Some of the most actively traded issues by type in the week ended March 17 were from California, Wisconsin and Puerto Rico, according to Markit.

In the GO bond sector, the Los Angeles, Calif., 3s of 2042 were traded 42 times. In the revenue bond sector, the Wisconsin Health and Educational Facilities Authority 4s of 2039 were traded 82 times. And in the taxable bond sector, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico 6.15s of 2038 were traded 16 times.

Week's Most Actively Quoted Issues

New York City and Illinois names were among the most actively quoted bonds in the week ended March 17, according to Markit.

On the bid side, the Middletown City School District, N.Y., general obligation 3s of 2040 were quoted by 66 unique dealers. On the ask side, the New York City Municipal Water Finance Authority revenue 4s of 2039 were quoted by 253 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 25 unique dealers.

MSRB: Previous Session's Activity

The Municipal Securities Rulemaking Board reported 41,714 trades on Thursday on volume of $10.919 billion.

Lipper: Muni Bond Funds Report Outflows

Investors in municipal bond funds continued to withdraw cash in the latest week, according to Lipper data released late Thursday. The weekly reporters saw $118.061 million of outflows in the week ended March 16, after outflows of $73.145 million in the previous week.

The four-week moving average has now moved into the red at negative $97.024 million, after being positive at $52.510 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds also had outflows, losing $126.198 million in the latest week after falling $25.122 million in the previous week. Intermediate-term funds had inflows of $64.843 million after outflows of $1.386 million in the prior week.

National funds had outflows of $12.954 million after inflows of $669.000 million in the previous week. High-yield muni funds reported inflows of $65.995 million in the latest reporting week, after inflows of $17.823 million the previous week.

Exchange traded funds saw inflows of $31.051 million, after inflows of $11.944 million in the previous week.

 

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