If market participants thought they had a lot of options in the past week, they might feel overwhelmed in the coming five days, as primary municipal volume is expected to vault to more than $15 billion.
Primary Market
Volume for the week of Oct. 21 is forecast by Ipreo to jump up to $15.39 billion, composed of $10.92 billion of negotiated bond deals and roughly $4.47 billion of competitive bond sales.
Dan Heckman, senior fixed income strategist U.S. Bank Wealth Management, said that the massive issuance will test the market, which is weaker right now with yields rising.
"We have seen lately the market having a harder time digesting issuance than it was earlier in the year, and that will continue this week – even more so with the surge of issuance," he said.
Alan Schankel, a managing director at Janney said that the calendar should be well received, as it is topped by three big-state general obligation issues and a sale by the recently upgraded Commonwealth Financing Authority in Pennsylvania.
"You have all of that plus Philadelphia School District, which should provide a bit more yield," Schankel said. "Beyond these names there is good variety, something for everyone with higher education, toll revenue, and healthcare among other sectors."
The top two negotiated deals of the week each has a taxable or corporate taxable portion and the third largest deal is all taxable.
"It has a little to do with the influx of foreign investors who continue to come in, but maybe more-so it's about some issuers have exhausted what they can do on the tax exempt side, so they are turning to the taxable side to get some projects done," Heckman said.
Citi is scheduled to price the New Jersey Healthcare Financing Authority's $1 billion of revenue and refunding bonds for the Robert Wood Johnson Barnabas Health Obligated Group on Wednesday. It is anticipated that the deal will be feature $613 million of tax-exempt and $456 million of corporate CUISP's. The deal is rated A1 by Moody's Investors Service and A-plus by S&P Global Ratings.
Bank of America Merrill Lynch is expected to price the School District of Philadelphia's $817 million of general obligation, GO refunding and taxable bonds on Wednesday.
In the competitive arena California, which has sold the most out of all issuers with an excess of $7 billion this year, will be adding to that total with three separate sales on Tuesday that will total $1.65 billion of various purpose GO and GO refunding bonds.
The largest sale will consist of $815 million, followed $575.755 million and then $255 million of taxables. The deals are rated Aa3 by Moody's, AA-minus by S&P and Fitch Ratings.
Wells Fargo is expected to price the State of Connecticut's $650 million of GO bonds and green bonds on Tuesday, following a one-day retail order period on Monday. The deal is rated Aa3 by Moody's and AA-minus by both S&P and Fitch.
"Until we see a taper-off on the supply, we won't see much relief coming into the market," Heckman said. "This adjustment period is warranted, dealers are challenged with supply and inventory they wish they didn't have. But if we get past this week with not a lot of balances and we see a drop in supply going forward, we could catch a rally."
Schankel said demand may be weakening.
"If I have any concern it is the easing of fund flows with Lipper reporting the slowest pace in a while," he said.
Secondary Market
Top shelf municipal bonds closed weaker on Friday. The yield on the 10-year benchmark muni general obligation rose one basis point to 1.71% from 1.70% on Thursday, while the yield on the 30-year increased three basis points to 2.56% from 2.53%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were also weaker on the long end by late Friday. The yield on the two-year Treasury was unchanged from 0.83% on Thursday, the 10-year Treasury yield gained to 1.79% from 1.74% and the yield on the 30-year Treasury bond increased to 2.56% from 2.47%.
The 10-year muni to Treasury ratio was calculated at 95.6% on Friday compared to 97.8% on Thursday, while the 30-year muni to Treasury ratio stood at 100.2% versus 102.2%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Oct. 14 were from Puerto Rico, Massachusetts and Illinois,
In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 were traded 16 times. In the revenue bond sector, the Massachusetts Development Finance Agency 4s of 2036 were traded 38 times. And in the taxable bond sector, the Illinois 5.1s of 2033 were traded 18 times.
Week's Most Actively Quoted Issues
Illinois and Florida issues were among the most actively quoted bonds in the week ended Oct. 14, according to Markit.
On the bid side, the Illinois taxable 7.35s of 2035 were quoted by 46 unique dealers. On the ask side, the Tampa, Fla., revenue 3s of 2046 were quoted by 423 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 24 unique dealers.
Lipper Reports Inflows
Municipal bond funds reported inflows for the 54th week in a row, according to Lipper data released on Thursday.
The weekly reporters saw $147.312 million of inflows in the week ended Oct. 12, after inflows of $324.600 million in the previous week, Lipper said.
The four-week moving average remained positive at $413.441 million after being in the green at $497.993 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 experienced outflows, losing $55.575 million in the latest week after inflows of $134.483 million in the previous week. Intermediate-term funds had inflows of $130.884 million after inflows of $110.063 million in the prior week.
National funds had inflows of $105.906 million on top of inflows of $263.911 million in the previous week. High-yield muni funds reported outflows of $247.536 million in the latest reporting week, after outflows of $33.243 million the previous week.
Exchange traded funds saw inflows of $138.071 million, after inflows of $92.295 million in the previous week.
