Market looking ‘pretty good right now’ as muni calendar falls to $1B

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The holiday season is set to kicks off in earnest for the municipal bond market, with new issue supply set to slow to a crawl.

Ipreo forecasts weekly bond volume will plunge to $1 billion from a revised total of $7.8 billion in the past week, according to updated data from Thomson Reuters. The calendar is composed of $831.5 million of negotiated deals and $175.1 million of competitive sales.

Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, said on Friday that the muni market is looking and feeling “pretty good right now,” even as issuance falls off.

“This time of year there is usually and has been lots of tax loss selling,” said Heckman. “The muni market has weathered that well and bids for sellers are pretty decent. There is a good tone and flow for the market right now.”

More bonds are coming due and being called than being issued. “It’s telling when you have cash outflows and market is improving in terms of price at the same time,” he said.

Heckman said the market is in good shape, leaving him wondering about the possibility of the strong performance carrying over into January.

“I can see the market weighed down with some selling, with muni yields grinding lower and tighter through the first quarter and that could spur more issuance,” he said.

Primary market
Raymond James & Associates is expected to price the San Juan Unified School District, Sacramento County, Calif.’s $230 million of general obligation bonds on Tuesday.

The offering is composed of Election of 2012 Series 2019 Measure N and Election of 2016 Series 2019 Measure P GOs.

The deal is rated Aa2 by Moody’s Investors Service and AAA by Fitch Ratings.

Citigroup is expected to price on Tuesday the Allentown Neighborhood Improvement Zone Development Authority, Pa.’s $149 million of Series 2018 subordinate tax revenue bonds for the City Center project.

The deal is unrated.

On Wednesday, Piper Jaffray is expected to price the Colorado Health Facilities Authority’s $136 million of improvement and refunding revenue bonds consisting of Series 2018A-1 for the Bethesda project, Series 2018A-2 taxable bonds and Series 2018B second tier bonds.

The deal is rated A-minus by S&P Global Ratings

There are no competitive deals on the calendar larger than $100 million. The biggest competitive sale of the week will be Stratford, Conn.’s $70 million offering on Wednesday of $70 million GOs, issue of 2018.

Bond Buyer 30-day visible supply at $3.25B
The Bond Buyer's 30-day visible supply calendar decreased $1.24 billion to $3.251 billion for Friday. The total is comprised of $1.14 billion of competitive sales and $2.12 billion of negotiated deals.

Lipper: Muni bond funds report outflows
Investors in municipal bond funds pulled cash out of the funds for the 12th straight week, according to Lipper data released on Thursday.

The weekly reporters saw $316.517 million of outflows in the week ended Dec. 12 after outflows of $692.041 million in the previous week.
Exchange traded funds reported inflows of $642.771 million, after inflows of $257.596 million in the previous week. Ex-ETFs, muni funds saw outflows of $959.288 million after outflows of $949.637 million in the previous week.

The four-week moving average remained negative at -$429.855 million, after being in the red at -$383.506 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 had inflows of $417.609 million in the latest week after outflows of $516.300 million in the previous week. Intermediate-term funds had outflows of $1.024 billion after outflows of $256.528 million in the prior week.

National funds had outflows of $134.066 million after outflows of $503.919 million in the previous week. High-yield muni funds reported inflows of $160.424 million in the latest week, after outflows of $146.985 million the previous week.

Secondary market
Municipal bonds were mostly stronger on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields dipped less than one basis point in the eight- to 17-year and 27- to 30-year maturities, rose less than a basis point in the one- to four-year and 19-to 24-year maturities and remained unchanged in the five- to seven-year, 18-year and 25- and 26-year maturities.

High-grade munis were mostly stronger, with yields calculated on MBIS' AAA scale decreasing less than one basis point in the one- to five-year, eight- to 16-year and 28- to 30-year maturities, rising less than a basis point in the 18- to 26-year maturities and remaining unchanged in the six- and seven-year, 17-year and 27-year maturities.

Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the 30-year muni maturity remaining unchanged.

Treasury bonds were stronger amid stock market weakness. The Treasury 30-year was yielding 3.135%, the 10-year yield stood at 2.886%, the five-year was at 2.726%, the two-year was at 2.733% while the Treasury three-month bill stood at 2.419%.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 83.3% while the 30-year muni-to-Treasury ratio stood at 101.3%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

“The municipal markets are looking towards next week’s FOMC meeting going into the weekend. The broader muni curve is unchanged today,” ICE Data Services said in a Friday market comment. “The high-yield sector is trading evenly mixed without any particular direction. Puerto Rico is also unchanged this morning, as are the tobacco settlement bonds. The taxable market is 1.5 basis points to 2.5 basis points lower in yield in the belly of the market.”

Previous session's activity
The Municipal Securities Rulemaking Board reported 50,174 trades on Thursday on volume of $15.23 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 18.287% of the market, the Empire State taking 11.826% and the Lone Star State taking 8.342%.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended Dec. 14 were from New York, California and Puerto Rico issuers, according to Markit.

In the GO bond sector, the New York City zeros of 2038 traded 18 times. In the revenue bond sector, the California Municipal Finance Authority 4s of 2048 traded 118 times. And in the taxable bond sector, the Puerto Rico GDB Recovery Authority 7.5s of 2040 traded 33 times.

Week's actively quoted issues
Puerto Rico and New Jersey names were among the most actively quoted bonds in the week ended Dec. 14, according to Markit.

On the bid side, the Puerto Rico GDB Recovery Authority taxable 7.5s of 2040 were quoted by 110 unique dealers. On the ask side, the New Jersey Educational Facilities Authority revenue 4s of 2040 were quoted by 413 dealers. And among two-sided quotes, the Puerto Rico GDB Recovery Authority taxable 7.5s of 2040 were quoted by 25 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, or contact Ziad Saba at 212-803-6079 for more information.

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