The municipal bond market offers a nice variety of issues this week designed to appeal to those tax-exempt holiday shoppers looking for both quality and a good deal.
The calendar consists of approximately $12.5 billion of new issue supply and traders expect the deals to be attractively priced.
"There's lots of deals in the $200 million-plus area," the Texas trader said. "And they will drive the train this week."
The Bond Buyer's 30-day visible supply totals about $18 billion, consisting of almost $13 billion of negotiate deals and around $5 billion of competitive sales.
"That number has grabbed everybody's attention," the trader said. "It means there's some supply down the road."
Puerto Rico
Meanwhile, Puerto Rico lawmakers are preparing to vote on a crude oil tax hike that would back a borrowing plan for the Government Development Bank.
The tax increase would let the Infrastructure Financing Authority sell as much as $2.9 billion of bonds backed by revenue from oil taxes. Proceeds from the sale, which was delayed from last month until early next year, would repay $2.3 billion of Highways & Transportation Authority obligations.
The proposal would increase the petroleum tax to $15.50 a barrel from the current $9.25, and would also avert a shutdown of public transit.
"If the fuel tax increase, locally known as 'crudita,' passes, it will be the third attempt to get it through the legislature" according to Cate Long, Principal of the research firm Puerto Rico Clearinghouse.
Long said that even if the tax increase passes in the legislature, it may not be enough to help boost the commonwealth's debt woes.
"Unfortunately it's not clear that passage of the crudita will generate enough revenues to support the full debt service for approximately $2.5 billion in new Infrastructure Financing Authority bonds (about $300 million is repayment of RBC HTA Bond Anticipation Notes)," Long said. "And even with passage of the crudita, the Highways & Transportation Authority will still require reorganization and short-term subsidies from the Government Development Bank."
Municipal Market Advisors managing director Matt Fabian said that the upcoming bond deal is in Puerto Rico's best interest for the short term.
"They need some time now, some space over the next year," he said, adding that the bond deal will help them achieve liquidity in the near-term.
"It helps them keep the trains and buses moving, it keeps the lights on now in the absence of a clear, long-term financial plan," he said.
Traders didn't see much trading action in Puerto Rico names on Monday.
"Puerto Rico doesn't seem any weaker than where they were trading at the end of last week," according to Randy Smolik, Senior Market Analyst at Municipal Market Data. He added that he saw the Puerto Rico 8s of 2035 trade at around the 9.55% to 9.60% range compared with about 9.60% last week, while the 5 3/8s of 2033 were also comparable to where they had been trading late last week.
Secondary Market
At the close on Monday, municipal bond yields were lower, with the benchmark 10-year general obligation yield down two basis points (three basis points with the December roll) to 2.06% from Friday's close of 2.08% and 30-year GO was off two basis points to 2.99% from 3.01% on Friday, according to the final read of MMD's triple-A scale.
The MMD read for the 2024 maturity includes adjustments for the December roll, with the final closing curve reflecting December maturities.
On Monday, Treasury prices were lower, with the two-year note yield at 0.49% from 0.47% on Friday. The 10-year yield was at 2.22% from 2.17% while the 30-year was at 2.95% from 2.89% on Friday.
On Monday, the 10-year muni-to-Treasury ratio closed at 92.8% versus 95.6% on Friday. The 30-year muni to Treasury ratio closed at 101.4, compared with 104.0% on Friday. The ratio is calculated by taking the yield on a triple-A rated muni and comparing it to the yield on a Treasury of the same maturity. The higher the ratio, the more attractive munis are to Treasuries.
The Texas trader said that there was some retail trading happening on Monday, cleaning up from last week. He said that many bonds with 2% coupons were now being sought out. "Last week you couldn't give them away, now you see them being snapped up."
Primary Market
The new issue market is gearing up for the first big sale of the week on Tuesday - the New York State Urban Development Corp.'s three-tier competitive offering. Up for bid are $372 million taxable state personal income tax revenue bonds, $424 million Group A and $515 million Group B state personal income tax revenue bonds.
On Wednesday, the largest deal of the week is scheduled to be priced - the Texas Transportation Commission's $1.6 billion general obligation mobility fund bonds. The issue will be priced by Bank of America Merrill Lynch.
Also on Wednesday's negotiated slate are New York State Thruway Authority's $750 million of general revenue refunding bonds to be priced by Goldman, Sachs; Miami-Dade County, Fla.'s $750 million of aviation revenue refunding bonds, AMT and non-AMT, to be priced by Wells Fargo Securities; and Phoenix, Ariz., Civic Improvement's $160 million of junior lien water system revenue bonds, to be priced by Bank of America Merrill Lynch.
In the competitive arena on Wednesday, the state of New Jersey will sell $525 million general obligation bonds on Wednesday and the Los Angeles, Calif., MTA will offer $140 million revenue bonds for sale.
Muni Money Funds See Outflows
Tax-exempt money market funds declined slightly in the week ended Nov. 25, as outflows of $148.9 million caused total net assets to decrease to $252.65 billion, according to The Money Fund Report, a service of iMoneyNet.com. The outflows compare to the arrival of $287.7 million in the prior week.
The average, seven-day yield for the 409 weekly reporting tax-exempt money market funds remained unchanged at 0.01%, while the average maturity declined by one day to 40 days.
The total net assets of the 997 weekly reporting taxable money market funds generated inflows of $6.69 billion in the week ended Nov. 25 as total net assets settled at $2.433 trillion, down from inflows of $14.72 billion in the prior week.
The average, seven-day yield for the taxable money market funds held steady at 0.01%, while the average maturity remained at 45 days.
Overall, the combined total net assets of the 1,406 weekly reporting money market funds gained $6.54 billion in the week ended Nov. 25 and increased to $2.686 trillion -- up from gains of $15 billion in the previous week.
In contrast, tax-exempt money market fund assets tracked by the Investment Company Institute fell $1.75 billion to $252.4 billion. Tax-exempt assets held by retail investor fell $47 million to $184.4 billion while institutional tax-free assets dropped $1.28 billion to $68.4 billion, according to ICI.
Muni Bond Funds See Inflows
Late on Friday, weekly reporting municipal bond funds reported $564 million of net inflows in the week ended Nov. 26, compared with $590 million of inflows the previous week, according to data released by Lipper FMI. The four-week moving average remained positive at $472.1 million. Funds have seen inflows in 41 out of the 48 weeks in 2014.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 7,136 trades on Friday for volume of $3.313 billion.
Most active on Friday, based on the number of trades, were the New Jersey State Trust Fund Authority's Transportation Program's 2014 Series AA 4 ¼s of 2044 which traded 46 times with an average price of 99.453 for an average yield of 4.28%. This same name was the most actively traded on Monday, trading 125 times at a high/low price of 100.75/97.501 and a high/low yield of 4.402%/4.154%.
Reporter Christine Albano contributed to this report.
