Massachusetts, Los Angeles and Pennsylvania top $6.5B slate

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Municipal bond buyers will see a relatively healthy new-issue slate with some big names passing by in the upcoming week.

IHS Markit Ipreo forecasts weekly bond volume will rise to $6.5 billion from a revised total of $5.4 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $4.1 billion of negotiated deals and $2.4 billion of competitive sales.

Despite falling yields amid sky-high demand, the muni market should be seeing more issuance — and that is curious, according to Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management.

"I wish I had a key to the puzzle but it seems like munis are in a new world, where demand will continue to outstrip supply," he said.

Heckman noted that practically any deal that comes in “attractively priced” is getting many times oversubscribed.

Some thought demand would wane post tax-season, but that hasn't been the case thus far. "I am not surprised at all — with the tax code in its current form, and as we progress, more and more people will start seeing the lack of available ways to reduce tax income," Heckman said. "I don't see demand significantly decreasing in the near future, nor do I see yields moving significantly higher."

He said he thinks those issuers who can are trying to come to market and put deals together to try and hit an advantageous market. "I think it should pick up a little bit here, as we start to approach the summer months but it is not going to be a huge boom," he said.

Primary Market
The leader of the pack is Massachusetts (Aa1/AA/AA+), which will be selling $700 million of general obligation bonds in four competitive sales on Tuesday.

The sales consist of $400 million of Series 2019C GOs, $100 million of Series 2019D GOs, $100 million of Series 2019E GOs and $100 million of Series 2019F GOs.

PFM Financial Advisors is the financial advisor; Locke Lord is the bond counsel.

Also on tap from Bay State issuers are $145 million of general revenue and refunding green bonds from the Massachusetts Water Resource Authority (Aa1/AA+/AA+) slated to be priced by Morgan Stanley on Thursday and the Massachusetts Development Finance Agency’s (NR/BBB/NR) $174 million of tax-exempt and taxable revenue bonds for Atrius Health expected to be priced by Morgan Stanley on Tuesday.

In the competitive arena, the Los Angeles Unified School District (Aa2/NR/AAA) is selling $634 million of Series 2019A GOs on Tuesday.

Proceeds will be used to current refund certain outstanding debt.

Fieldman, Rolapp & Associates is the financial advisor; Hawkins Delafield is the bond counsel.

Citigroup is expected to price the Pennsylvania Commonwealth Financing Authority’s (A1/A/A+) $502 million offering on Wednesday. The deal consists of $389 million of taxable Series 2019A revenue bonds due 2041 and $113 million of tax-exempts which are made up of Series 2019B revenue refunding bonds and Series 2020A forward delivery bonds.

Raymond James & Associates is set to price Miami-Dade County, Fla.’s (NR/A/A) Aviation revenue refunding bonds consisting of tax-exempt Series 2019A bonds subject to the alternative minimum tax and Series 2019B taxables.

Lipper: More inflows into muni funds
For the 17th week in a row, investors poured cash into municipal bond funds, according to data from Refinitiv Lipper released Thursday.

Mutual funds, which report flows weekly, saw $1.191 billion of inflows in the week ended May 1 after inflows of $1.576 billion in the previous week.

Exchange traded muni funds reported inflows of $314.019 million after inflows of $294.445 million in the previous week. Ex-ETFs, muni funds saw inflows of $877.330 million after inflows of $1.281 billion in the previous week.
The four-week moving average remained positive at $1.1 billion, after being in the green at $981.153 million in the previous week.

Long-term muni bond funds had inflows of $707.615 million in the latest week after inflows of $2.220 billion in the previous week. Intermediate-term funds had inflows of $273.623 million after outflows of $162.223 million in the prior week.

National funds had inflows of $1.112 billion after inflows of $1.249 billion in the previous week. High-yield muni funds reported inflows of $294.690 million in the latest week, after inflows of $279.009 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 $2.384 billion in the week ended April 24, while long-term muni funds alone saw an inflow of $2.006 million as ETF muni funds saw an inflow of $378 million.

Morgan Stanley: Muni-cycles don't die of old age
Without conviction of a macro catalyst, they wouldn't try to time the market, Morgan Stanley strategists said in a Friday market comment.

Municipal bonds are not intrinsically overvalued and remain a "late-cycle haven," with limited credit risk and range-bound rates markets, according to the research report. “Absent a rate shock, ratios are a random walk near term. We are duration neutral and prefer a barbell,” according to strategists Mark Schmidt, Michael Zezas and Alexander Ventriglia.

Morgan Stanley said investors should keep these thoughts in mind: stay the course; don't worry about a selloff unless there's an unexpected shock; and remember that the market is rich historically, but not intrinsically.

“It's normal to worry about a selloff given strength in flows and ratios. But day to day, cuts to the ratio are about as likely as bumps,” they said, adding that “inside of three months, the ratio is like a random walk. As measured by moves in the ratio, major selloffs remain rare. Defensive positioning is rarely profitable: front-end excess returns have historically been about zero (pre-tax); most of munis' excess returns versus Treasuries come from out the curve.”

Technicals are strong, but sentiment is, too, they said.

“Credit headline risks are few and far between at the moment. Rates volatility remains low, and our rates strategists expect global bond markets to stay range-bound,” according to the strategists.

They concluded by saying that “haven” or not, “we'd consider outright selling munis if valuations became unjustifiable. But the market is only rich historically. Intrinsically, valuations make sense provided that credit risks stay dormant. We roughly estimate that the average marginal state and federal income tax rate for muni investors is around 37% — in line with a 10-year market-implied tax rate versus corporates of 36%. Polling indicates that about 20% of taxpayers believe that their taxes went up this year, not down. If you ignore liquidity risk, and if you also expect credit quality to remain stable, then it's imaginable that long-end ratios could fall even further. We'd not go overweight the market here, however. Levels only make sense for individuals. We may be as much as 50 basis points away from levels that banks and insurance companies would find favorable.”

Secondary market
Munis were stronger on the MBIS benchmark scale Friday, which showed yields falling less than a basis point in the 10-year maturity and dropping one basis point in the 30-year maturity. High-grade munis were also stronger, with yields falling less than one basis points in the 10- and 30-year maturities.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10-year GO and the 30-year muni fell by one basis point.

Treasuries were stronger as stocks traded up.

The 10-year muni-to-Treasury ratio was calculated at 72.7% while the 30-year muni-to-Treasury ratio stood at 86.1%, according to MMD.

Previous session's activity
The MSRB reported 39,178 trades on Thursday on volume of $13.68 billion. The 30-day average trade summary showed on a par amount basis of $12.39 million that customers bought $6.05 million, customers sold $4.12 million and inter-dealer trades totaled $2.22 million.

California, Texas and New York were most traded, with the Golden State taking 16.274% of the market, the Empire State taking 12.027% and the Lone Star State taking 11.721%.

The most actively traded security was the Washington Suburban Sanitation District, Md., Series 2016 revenue 4s of 2039 which traded 19 times on volume of $26.71 million.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended May 3 were from Puerto Rico issuers, according to IHS Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 38 times. In the revenue bond sector, the Puerto Rico Sales Tax Financing Corp. 5s of 2058 traded 64 times. In the taxable bond sector, the COFINA 4.55s of 2040 traded 20 times.
Week's actively quoted issues
Puerto Rico and Arizona names were among the most actively quoted bonds in the week ended May 3, according to IHS Markit.

On the bid side, the COFINA revenue 5s of 2058 were quoted by 107 unique dealers. On the ask side, the Maricopa County School District No. 006, Ariz., taxable 6.243s of 2026 were quoted by 47 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 22 dealers.

The most actively traded issue was the NYC Municipal Water Finance Aauthority 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. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Municipal bond funds Pennsylvania Commonwealth Financing Authority Los Angeles Unified School District Commonwealth of Massachusetts Miami-Dade County State of New York State of California State of Texas Puerto Rico Sales Tax Financing Corp (COFINA)
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