Municipal bond market traders are looking ahead to next week's new issue slate, which is headlined by deals from Chicago, Maryland and California.
Secondary Market
Treasury prices were lower on Friday, with the yield on the two-year Treasury note rising to 0.62% from 0.58% on Thursday, while the 10-year yield rose to 2.38% from 2.29% and the 30-year yield increased to 3.18% from 3.10%.
On Thursday, the yield on the 10-year benchmark muni general obligation closed up three basis points to 2.25% from 2.22% on Wednesday, while the yield on the 30-year GO rose four basis points to 3.24% from 3.20%, according to the final read of Municipal Market Data's triple-A scale. Trading was light, according to Interactive Data.
The 10-year muni to Treasury ratio was calculated on Thursday at 97.8% versus 100.6% on Wednesday, while the 30-year muni to Treasury ratio stood at 104.6% compared to 107.2%, according to MMD.
Primary Market
Garnering much interest is next week's $1.07 billion general obligation bond deal from the city of Chicago.
Expected to be priced by Morgan Stanley, the sale includes $344 million of Series 2015A tax-exempts and $730 million of Series 2015B taxables, with much of the sale moving short-term debt into a longer, fixed-rate term with capitalized interest for two and a half years. The deal offers of a mix of serial and term bonds with a final 2042 maturity. William Blair and Siebert Brandford Shank are co-senior managers on the sale.
The city said the transaction will eliminate liquidity risks on its general fund stemming from the May 12 loss of its investment grade rating from Moody's Investors Service.
This week, Standard & Poor's downgraded the city to BBB-plus from A-minus, removed the rating from negative CreditWatch and assigned a negative outlook. Fitch Ratings affirmed the city's BBB-plus rating, removed the credit from its rating watch negative and assigned a negative outlook. And Kroll Bond Rating Agency affirmed the city's A-minus and stable outlook.
Chicago plans to return later this year or early next year with a $700 million GO sale that will include new money, further scoop and toss restructurings, and capitalized interest.
Also next week, top-rated Maryland is set to competitively sell $500 million of GOs on Thursday in two separate sales: one for $450 million of tax-exempts and the other for $50 million of taxables.
The proceeds of the tax-exempts will be used to finance capital projects such as educational facilities and hospitals. The taxable bond proceeds will mainly be used to support housing, community development and water-quality financing programs.
Moody's, S&P and Fitch affirmed Maryland's triple-A rating ahead of the sale. Maryland typically has competitive GO bond sales twice a year. The Treasurer's office said it expects to have another sale in February or March.
Also on tap, JPMorgan is expected to price on Wednesday the California State University Trustees' $1.1 billion of systemwide revenue bonds consisting of $1.07 million Series 2015A tax-exempts, due 2015-2014, and $30 million of Series 2015B taxable, due 2016-2035.
The bonds are rated Aa2 by Moody's and AA-minus by S&P.
And Bank of America Merrill Lynch is slated to price the Indiana Toll Road ITR Concession Co.'s $1 billion of senior secured notes on Wednesday only months after the original private owner of the publicly owned toll road went bankrupt.
The new owner Australian fund manager fund IFM Investors, is set to complete the financing of its takeover bid with next week's sale. The 157-mile Indiana Toll Road is a key link between Chicago and the East Coast.
Fitch and S&P both rate the bonds BBB, which will be issued by IFM's subsidiary ITR Concession Co.
Municipal Bond Funds See $306M Cash Outflow
For the 10th week in a row, municipal bond funds reported cash outflows. The weekly reporting funds saw $305.707 million of outflows in the week ended July 8, after experiencing outflows of $1.199 billion in the previous week, according to the latest Lipper data.
This brought to 13 out of 28 weeks this year the funds have seen cash withdrawals.
The four-week moving average remained negative at $507.779 million after being in the red at $534.292 million in the previous week. The moving average has been negative for seven straight weeks. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds also experienced outflows, losing $147.939 million in the latest week, after seeing outflows of $898.989 million in the previous week. High-yield muni funds saw an outflow of $122.823 million in the latest reporting week, after seeing an outflow of $492.213 million the previous week.
Exchange traded funds saw outflows of $27.250 million, after experiencing inflows of $4.966 million in the previous week.
However, intermediate-term funds recorded inflows of $53.613 million after seeing outflows of $32.082 million in the prior week.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 43,033 trades on Thursday on volume of $9.927 billion.
The most active bond, based on the number of trades, was the FSU Financial Assistance Inc., Fla.'s Series 2015A educational and athletic facilities improvement revenue 4 1/8s of 2040, which traded 217 times at an average price of 99.221 with an average yield of 4.17%. The bonds were initially priced at 96.571 to yield 4.35%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $2.70 billion to $12.53 billion on Friday. The total is comprised of $2.95 billion competitive sales and $9.58 billion of negotiated deals.
