The municipal market rallied for its third day on Friday with yields falling across the curve.
The yield hike was most significant or nine to 15 year maturities with yields declining from four to six basis points, according to Municipal Market Data's triple-A scale. Municipal bonds are strengthening because they are continuing to follow treasuries, according to market participants.
Treasuries yields have been falling this week as investors flee to fixed income as tensions heat up in the Russia-Ukraine crisis. A trader in Florida said that he can see this strength for both municipal bonds and treasuries going into next week if no progress is made in the Ukraine situation.
"Can we go lower? Yes. The biggest determiner is the treasury market," he said. "I think munis will continue to reluctantly follow treasuries, and I think they will continue to underperform."
Treasuries performed well overall on Friday with yields on the 10-year falling three basis points to 2.40%, and by one basis point for the 30-year to 3.20%. The two-year note held steady at 0.44%.
Janney Capital Markets also attributed the recent treasury rally to global tensions.
Municipal yields also decreased from three to five basis points for bonds maturing in 16 to 30 years and ones maturing in seven to eight years. Bonds maturing in five years yields' fell as much two basis points, from one to three basis points for bonds maturing in six years, and the front end of the curve held steady.
The trader in Florida said that volume looks better next week, coming in around $6 billion while its averaged around $5 billion for most of 2014. He did note that if the two biggest deals are removed from the calendar, the neither the volume nor the selection is particularly impressive.
New York Leads Next Week's Calendar:
The headline deal for next week is a New York City issuance, where the city will bring $900 million of tax-exempt fixed-rate general obligation refunding bonds to market.
"The City GO could be real interesting because after DeBlasio took over there was lot of negativity on some accounts about going long on [NYC] name," the trader said. "As of recent a lot of supply of city GOs and the collapse in trading spreads and that has led city trading to historic tight levels."
The deal will enter the market in two parts as a $700 million series and a $200 million series. There will be a two-day order period beginning on Monday with institutional pricing expected on Wednesday.
The trader said there is a lot of demand for New York credits out there.
According to the press release, the transaction will refinance high interest rate bonds for economic savings.
The bonds will mature from 2015 to 2034. Bank of America is the lead underwriter on the deal. The deal's credit ratings were unavailable.
Citigroup Global Market is expected to will a bulk of next week's large deals starting with a twofold deal totaling $833.8 million of New York and New Jersey Port Authority revenue bonds. The bonds mature from 2015 to 2034.
Citigroup will bring $350 million of San Diego Regional Transportation Commission revenue bonds. The bonds mature from 2015 to 2048 and are rated AAA by both Standard & Poor's and Fitch Ratings.
Citigroup will issue $266.4 million of Michigan Trunk Line Fund Refunding bonds.
In the competitive market, Minnesota will auction $904 million of general obligation bonds in the competitive market, the largest deal of the week.
Of that amount $54.5 million will be taxable. All of the bonds will mature from 2015 to 2034.
The deal is rated Aa1 by Moody's Investors Service and AA-plus by both Standard & Poor's and Fitch Ratings.
Another large deal in the competitive market next week will come from the Alabama University Board of Trustees for $243.9 million of revenue bonds in a two-part deal. The bonds mature from 2015 to 2021 and are rated Aa2 by Moody's and AA-minus by S&P.
