Municipal bond market participants are ready for the start of the week's new issuance, with the lion's share of new supply slated to hit the screens on Tuesday.
Secondary Market
U.S. Treasuries were unchanged on Tuesday. The yield on the two-year Treasury was unchanged from 1.20% on Monday, while the 10-year Treasury was flat from 2.43%, and the yield on the 30-year Treasury bond was steady from 3.03%.
Top-rated municipal bonds finished weaker on Monday. The 10-year benchmark muni general obligation yield rose two basis points to 2.32% from 2.30% in Friday, while the yield on the 30-year GO increased two basis points to 3.09% from 3.07%, according to the final read of Municipal Market Data's triple-A scale.
On Monday, the 10-year muni to Treasury ratio was calculated at 95.5% compared to 95.5% on Friday, while the 30-year muni to Treasury ratio stood at 102.0%, versus 101.9%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 41,654 trades on Monday on volume of $9.34 billion.
Primary Market
About $5.6 billion of new issues are on offer this week, divided into $4.1 billion of negotiated deals and $1.5 billion of competitive sales.
Bank of America Merrill Lynch is set to price the San Francisco Bay Area Toll Authority, Calif.'s $552 million of Series 2017A, B, C & D toll bridge term- and index-rate revenue bonds on Tuesday. The bonds are rated Aa3 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.
BAML is also expected to price the Delaware River Joint Toll Bridge Commission of Pennsylvania and New Jersey's $438 million of Series 2017 bridge system revenue bonds on Tuesday. The deal is rated A1 by Moody's, A by S&P and A-plus by Fitch.
And BAML is expected to price the New York Metropolitan Transportation Authority's $350 million of Series 2017A dedicated tax fund green bonds which are climate bond certified. The issue is slated to be priced on Wednesday after a one-day retail order period on Tuesday. The deal is rated AA by S&P and Fitch.
Additionally, BAML is set to price the Connecticut Housing Finance Authority's $210 million of Series 2017 Subseries A-1, A-2 (AMT) A-4 and A-5 housing mortgage finance program for retail investors on Tuesday ahead of the institutional pricing on Wednesday. The CHFA said that if there is strong demand for the bonds, the deal could wrap up Tuesday. The bonds are rated triple-A by Moody's and S&P.
Goldman Sachs is expected to price the Dormitory of the State of New York's $190.65 million of Series 2017 revenue bonds for Columbia University. The DASNY deal is rated triple-A by Moody's and S&P.
Piper Jaffray is set to price two deals for the Gresham-Barlow School District No. 10JT, Ore., totalling $291.17 million on Tuesday. The deals consist of $152.43 million of Series 2017B general obligation current interest bonds and $138.74 million of Series 2017A GO DIBs. The deals are rated A-plus by S&P.
In the competitive arena, the Long Beach Unified School District, Calif., is selling $450 million of general obligation bonds in two separate sales on Tuesday.
The offerings consist of $300 million of election of 2016 Series A unlimited tax GOs and $150 million of election of 2016 Series E unlimited tax GOs. The deals are rated Aa2 by Moody's and triple-A by Fitch.
The Las Vegas Valley Water District, Nev., is selling $152.77 million of GOs in two separate sales on Tuesday.
The offerings consist of $129.33 million of Series 2017A limited tax GO water refunding bonds additionally secured by pledged revenue and $23.44 million of Series 2017B limited tax GO water refunding bonds additionally secured by Southern Nevada Water Authority pledged revenue. The deals are rated Aa1 by Moody's and AA by S&P.
Since 2007, the district has sold about $3.3 billion of bonds, with the most issuance coming in 2016 when it offered $606 million. The water district did not come to market in 2007 or 2013.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $61.1 million to $9.77 billion on Tuesday. The total is comprised of $3.18 billion of competitive sales and $6.59 billion of negotiated deals.
SPDJI Looks at 'The Uncorrelated'
Now might be a good time to examine "The Uncorrelated" – those asset classes which are not correlated to the equity market, J.R. Rieger, managing director and global head of fixed income at S&P Dow Jones Indices, writes in a Monday market comment.
Corporate bonds of the issuers in the S&P 500 are tracked in the S&P 500 Bond Index, according to Rieger, who adds that as a group they have seen a negative correlation to the equities market. Heavily composed of investment-grade bonds, this index has recorded a positive return of 0.65% year-to-date and a weighted average yield of 3.3%.
"Investment-grade municipal bonds also historically have had negative correlations to the equities markets," Rieger writes. "The
Senior loans are higher in the capital market structure than unsecured high-yield bonds and are also floating rate instruments.
"These characteristics help make them less correlated with the equities market as well as the fixed rate bond markets. The S&P/LSTA U.S. Leverage Loan 100 Index has recorded a positive return of 0.30% year-to-date. The floating rate senior loans tracked in this index have a weighted average yield to maturity of 4.76%."
High-yield or "junk" bonds tend to be more highly correlated to equities due to their position in the capital market structure, he writes.
"As a result, junk bond and stock prices can at times move in the same direction based on the market's perception of the companies strength or weakness," Rieger says. "With a weighted average yield of 5.85% the S&P U.S. High-Yield Corporate Bond Index the index is up 1.57% compared to the S&P 500 Index, which is up 3.66% (total return)."
