The supply-demand relationship in the municipal market is skewed in favor of issuers, even as some sizeable deals trickled into the market Thursday, said U.S. Bank's Dan Heckman.
"There's been good demand, supply had been very light, and it's starting to pick up," Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, said in an interview.
In the competitive arena, Citigroup Global Markets Inc. won the bid for $316.89 billion of Fairfax County, Va., public improvement and refunding bonds, and Bank of America Merrill Lynch took $100 million of Berkeley County School District, S.C., general obligation bonds.
"There is a very strong appetite for higher credit quality issuers, so reception to these deals will be contingent on who the issuers are," said Heckman, whose wealth management strategy targets higher yields than those currently on the market. "We're trying to be patient, waiting for a better buying opportunity. The supply-demand scenario is more favorable to the issuer right now."
A dearth in supply the past month has pushed yields down, making some bonds a little bit on the expensive side, Heckman said. Several weeks of new issuance between $6 billion to $8 billion would help balance supply and demand in the market, Heckman said.
"That's when some deals would have to be priced at some more attractive levels and we would come buy from that market more aggressively," Heckman said. "But that could be 60 days from now."
Yields on the Fairfax refunding bonds ranged from 0.12% with a 3% coupon maturing in 2014 to 3.72% with a 4% coupon maturing in 2033. The bonds, rated AAA, are callable at par in 2023.
Yields on the Berkeley County school GOs ranged from 0.50% with a 5% coupon in 2017 to 3.80% with a 4% coupon maturing in 2032. The bonds, rated Aa2 by Moody's and AA-minus by Standard & Poor's, are callable at par in 2024.
In the negotiated market, Goldman, Sachs & Co. priced $160 million of California-based ABAG Finance Authority revenue bonds for non-profit Sharp HealthCare. The bonds are rated A1 by Moody's and AA-minus by Standard & Poor's.
Yields on the ABAG bonds ranged from 0.50% with a 3% coupon maturing in 2016 to 4.71% with a 5% coupon in 2043. The bonds are callable at par in 2023.
Muni bond yields on the Municipal Market Data triple-A scale further strengthened across the curve in the afternoon, with yields falling as much as five basis points on bonds maturing beyond 2041.
Treasury yields slid across the curve, with 10-year and 30-year yields each sliding seven basis points to 2.79% and 3.69%, respectively. The two-year fell three basis points to 0.38%.
