While there are only four negotiated deals scheduled for $100 million or larger on the calendar for the week, it doesn't mean there will not be issues to monitor in the municipal bond market.
IHS Markit Ipreo forecasts bond volume will fall to $3.6 billion from a revised total of $4.2 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $2.4 billion of negotiated deals and $1.2 billion of competitive sales.
"This is not a headliner type of week, but it is still meaningful especially considering the early close for Good Friday," said Tom Kozlik, an independent municipal analyst. “The muni market remains an issuer-friendly market, at least for now.” Kozlik added that he expects issuance will pick up between now and the Memorial Day weekend.
With demand high and yields low, one might surmise that issuers would want to take advantage of the environment but that has not been the case. “Sure, yields remain relatively low and there are projects and other needs that require financing but sources of revenue are becoming more and more scarce,” he said.
“The constructive tone for munis just continues to roll along,” said Eric Kazatsky, portfolio manager and Clark Capital Management. “We aren’t seeing a lot of seasonal weakness that usually accompanies tax time, and I would attribute much of that to impacts of tax reform and advantage munis continue to have over corporate bonds, especially in high-tax states.”
Primary Market
Goldman Sachs is expected to price the Tuscaloosa County Industrial Development Authority, Ala.’s (NR/NR/NR) $612 million of Series 2019A tax-exempt Gulf Opportunity Zone refunding bonds for the Hunt Refining Co. The deal was postponed last week.
Proceeds will refund all of the company’s outstanding GO Zone bonds issued from 2008 through 2012 in response to Hurricanes Katrina, Rita and Wilma under the Gulf Zone Opportunity Act of 2005 that allowed non-AMT tax-exempts for new capital investment in Alabama, Louisiana and Mississippi to spur recovery and economic development. The original bonds financed part of the company’s $1 billion investment in the Tuscaloosa oil refinery.
Also on tap is a $451 million multi-part hospital deal from the Cleveland Clinic Health System Obligated Group (Aa2/AA/NR).
Barclays Capital is set to price the Martin County Health Facilities Authority, Fla.’s $226 million of Series 2019A hospital revenue bonds and the state of Ohio’s $225 million of Series 2019B revenue bonds on Wednesday.
In Florida, JPMorgan Securities is set to price Miami Beach’s (Aa2/AA+/NR) $153 million of Series 2019 GOs on Tuesday.
In California, Goldman is expected to price the Anaheim Public Financing Authority’s (A1/A/AA-) $176 million of tax-exempt and taxable revenue refunding bonds on Wednesday.
The biggest competitive sale is also coming out of the Golden State when the California Department of Water Resources (Aa1/AAA/NR) sells $306.35 million of Series BA revenue bonds on Tuesday. Proceed of the deal, which benefits the Central Valley Project Water System, will be used to retire some outstanding commercial paper notes. Montague DeRose is the financial advisor and Orrick Herrington is the bond counsel.
California 10-year GO 5s trading strong
California’s $2.02 billion of new general obligation bonds debuted in secondary trading on Friday.
The new Cal GO 5s of 2029 were trading at a high price of 126.436 cents on the dollar, a low yield of 2.05%. The bonds dipped to as low as 126.108 to yield 2.08% before resuming its upward trajectory. The 5s ($174 million) were originally priced and began trading at 126.333 cents on the dollar to yield 2.06%. Volume totaled $25.5 million in 77 trades.
State Treasurer Fiona Ma said $1.63 billion of the new-issue refunded about $1.9 billion of bonds issued in April 2009, when the state had budget problems and interest rates were higher. Refinancing the old debt will save taxpayers more than $403 million in debt service costs over the next 10 years, or more than $362 million on a present-value basis, according to the treasurer. Along with the savings from the state’s March GO sale, this will save taxpayers more than $1.42 billion in the next 19 years, she said.
“April is financial literacy month and the huge savings achieved by this bond sale offers a wonderful teaching moment that illustrates the impact of wisely managing our debt,” Ma said. “It works the same for the state as it does for California families — by refinancing your home mortgage, you can save more in your rainy day fund for unforeseen emergencies and other needs. My office will continue to refinance the state’s existing debt to reduce debt service costs whenever possible.”
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California's bond sale
Muni CUSIP requests indicate more supply
Municipal CUSIP requests rose 4.6% in March, signaling a slight uptick in new issuance over the near term.
The aggregate total of all municipal securities — including municipal bonds, long-term and short-term notes, and commercial paper — rose to 987 last month from 944 in February. Request for municipal bond identifiers gained in March to 807 from 766 in February, while long-term notes decreased to 18 from 35 and short-term notes gained to 91 from 72 as commercial paper and other securities remained unchanged at 71.
“Interest rates are holding at historic lows on a global basis and central banks are signaling that they will stay that way for the near term,” said Gerard Faulkner, Director of Operations for CUSIP Global Services. “Clearly, that sentiment is weighing on the minds of issuers who are seizing the opportunity to raise new capital, but they are doing so at a fairly measured pace.”
On a year-over-year basis, total muni requests rose 13.9% to 2,740 from 2,406 in the first three months of 2018 while muni bond requests were up 12.5% to 2,223 from 1,976 in the first three months of last year.
Among top state issuers, CUSIPs for scheduled public finance offerings from Texas, New York and California were the most active in February, with Texas on top with 113 requests.
Bond Buyer 30-day visible supply at $5.07B
The supply calendar fell $1.43 billion to $5.07 billion on Friday and is composed of $1.91 billion of competitive sales and $3.15 billion of negotiated deals.
Lipper: More inflows into muni funds
For the 14th week in a row, cash rushed into municipal bond funds, according to data from Refinitiv Lipper released late Thursday.
Mutual funds which report flows weekly saw $956.451 million of inflows in the week ended April 10 after inflows of $713.606 million in the previous week.
Exchange traded muni funds reported inflows of $123.407 million after outflows of $73.425 million in the previous week. Ex-ETFs, muni funds saw inflows of $833.045 million after inflows of $787.031 million in the previous week.
The four-week moving average remained positive at $1.157 billion, after being in the green at $1.329 billion in the previous week.
Long-term muni bond funds had inflows of $906.806 million in the latest week after inflows of $430.846 million in the previous week. Intermediate-term funds had inflows of $362.119 million after inflows of $296.500 million in the prior week.
National funds had inflows of $849.176 million after inflows of $648.963 million in the previous week. High-yield muni funds reported inflows of $366.867 million in the latest week, after inflows of $320.861 million the previous week.
On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.492 billion in the week ended April 3, while long-term muni funds alone saw an inflow of $1.453 billion as ETF muni funds saw an inflow of $39 million.
Secondary market
Munis were mixed on the MBIS benchmark scale Friday, which showed yields falling one basis point in the 10-year maturity and rising less than a basis point in the 30-year maturity. High-grade munis were stronger, with yields slipping less than one basis point in the 10- and 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GO rose by one basis point while the 30-year muni yield increased two basis points.
The 10-year muni-to-Treasury ratio was calculated at 75.4% while the 30-year muni-to-Treasury ratio stood at 90.2%, according to MMD.
Treasuries were weaker as stocks traded higher.
“Municipal yields are generally higher today for both investment-grade and high-yield sectors,” ICE Data Services said in a market comment on Friday. “The ICE Muni Yield curve is up one basis point for 10-year and longer maturity points. High-yield munis are also one basis point higher as are tobacco bond yields. Weakness is more pronounced for the taxable sector today with the curve up as much as 5.8 basis points in the five-year.”
Previous session's activity
The MSRB reported 40,713 trades Thursday on volume of $15.07 billion.
California, New York and Texas were most traded, with the Golden State taking 17.734% of the market, the Empire State taking 11.137% and the Lone Star State taking 10.607%.
Week's actively traded issues
Some of the most actively traded munis by type in the week ended April 12 were from New York and Oregon issuers, according to
In the GO bond sector, the New York City zeros of 2038 traded 18 times. In the revenue bond sector, the NYC Municipal Water Finance Authority 4s of 2041 traded 49 times. In the taxable bond sector, the Oregon University 4.052s of 2052 traded 22 times.
Week's actively quoted issues
Puerto Rico and New York names were among the most actively quoted bonds in the week ended April 12, according to IHS Markit.
On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5s of 2058 were quoted by 148 unique dealers. On the ask side, the Port Authority of N.Y. and N.J. revenue 4s of 2042 were quoted by 279 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 31 dealers.
The most actively traded issue was the NYC MWFA Series 2019 revenue 4s of 2041 which traded 19 times on volume of $35.22 million.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
