Portland-area Metro sold $652.8 million of taxable general obligation bonds Wednesday in an offering that was won by BofA Securities with a true interest cost of 3.3119%. The serial bonds were priced to yield from 2.35% in 2020 to 3.60% in 2039.
Metro (Aaa/AAA/NR) serves more than 1.5 million residents in the 25 cities in Clackamas, Multnomah and Washington Counties in Oregon. Proceeds will finance affordable housing projects in the Portland region, which will include the construction of housing for low-income households; the purchase, rehabilitation and preservation of existing affordable housing; and acquisition of land for affordable housing.
Piper Jaffray was the financial advisor on the deal while Orrick Herrington was the bond counsel.
Fed leaves rates steady
The Federal Open Market Committee continued to preach patience in holding the federal funds rate at 2.25% to 2.5%, while adjusting the interest rate on excess reserves — what it pays on bank reserves — to 2.35% from 2.40%, in an effort to keep the feds fund rate within its target range.
The panel noted softening inflation, stating, “On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2%.” Should inflation continue to retreat, the panel may lower rates despite at- or above-trend GDP growth.
“While the Fed statement now flags that core inflation is running below 2% it also acknowledges that the economy has been stronger than the Fed expected before," said Brian Coulton, chief economist at Fitch Ratings. "So it’s hard to see this as a decisively more dovish announcement."
Ratios falling
The muni to Treasury ratios have been declining steadily all year, according to data from Refinitiv.
The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasuries with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
On April 30, the 10-year muni-to-Treasury ratio was calculated at 74.3% while the 30-year muni-to-Treasury ratio stood at 86.9%. On Feb. 28, the 10-year stood at 77.2% and the 30-year was at 96.4%. And on Dec. 31, 2018, the 10-year was at 85.1% while the 30-year was at 100.7%.
“Muni-to-Treasury ratios have witnessed a substantial decline since the beginning of the year thanks in part to a supply/demand imbalance. Even though we are marking tax-exempt issuance up 3.3% as of April 30 compared to the same timeframe last year, Lipper has also reported 16 consecutive weeks of muni fund inflows in excess of $19 billion,” said Greg Saulnier, municipal bond analyst at Refinitiv MMD.
"Over a long period of time, when the curve shifted downward ratios would generally be maintained. However, now we are reaching such low absolute levels that the prior thinking no longer applies. On the short end, we are reaching the asymptotic level where ratios will not go much lower," said John Hallacy, contributing editor at The Bond Buyer.
"On the long end, as strange it sounds, with flows strong, overall moderate issuance and a Fed pausing and/or possibly easing, we stand to move even lower. The only real potential disruption to this present pattern is the volatility of global events," Hallacy said.
“Now we have June and July reinvestment cash on the horizon and just not enough bulky high-grade new issuance to go around,” Saulnier said. “Lots of money to put to work and not enough supply is leading to muni participants becoming comfortable at these new ratio levels.”
Primary market
The taxable GO deal from Oregon’s Metro will find a home with many municipal investors, according to market sources.
“Taxable municipals are just gold right now,” according to a New York trader. “It brings in such a new audience that just love taxable munis.”
The trader added that the offering’s high-quality, purpose and local appeal were likely also factors driving demand.
“The market feels very strong,” the trader said, noting there is still an abundance of money in the market with little in terms of supply.
He said investors have a bearish tone and that is helping municipal trading -- especially at a time when states like California, New York, and New Jersey are starving for new paper.
“Munis are such an option because of the tax rates and SALT deductions, so there is such a demand for these bonds,” he said.
New deals from these and other specialty, high-taxed states are “blowouts,” the trader said, with yields getting bumped and bonds flying out of the door nonetheless.
“Negotiated deals especially, investors are all over it,” he added.
On Wednesday, the Charleston County School District, S.C., (MIG1/NR/NR) sold $161.07 million of Series 2019B GO bond anticipation notes. JPMorgan Securities won the deal with a bid of 4%, a premium of $3,746,488.20, an effective rate of 1.616787%. The school district also sold $65.8 million of Series 2019A GO BANs. JPMorgan also won that deal with a bid of 2.5%, a premium of $301,364.00, an effective rate of 1.576778%. PFM Financial Advisors was the financial advisor; Haynsworth Sinkler was the bond counsel.
Barclays Capital received the official award on Philadelphia’s (A2/A/A-) $188.66 million of Series 2019A GO refunding bonds.
TD Securities received the official award on the Main Street Natural Gas, Inc.’s (Aa1/NR/NR) $676.68 million of Series 2019B gas supply revenue bonds.
Wednesday’s bond sales
Bond Buyer 30-day visible supply at $7.54B
The supply calendar was calculated at $7.54 billion Wednesday and is composed of $4.82 billion of competitive sales and $2.73 billion of negotiated deals.
ICI: Muni funds see $2.4B inflow
Long-term municipal bond funds and exchange-traded funds saw a combined inflow of $2.384 billion in the week ended April 24, the Investment Company Institute reported on Wednesday.
It was the 16th straight week the funds saw inflows and followed an inflow of $1.250 billion into the tax-exempt mutual funds in the previous week.
Long-term muni funds alone saw an inflow of $2.006 billion after an inflow of $1.127 billion in the previous week; ETF muni funds alone saw an inflow of $378 million after an inflow of $123 million in the prior week.
Taxable bond funds saw combined inflows of $7.592 billion in the latest reporting week after inflows of $7.559 billion in the previous week.
ICI said the total combined estimated outflows from all long-term mutual funds and ETFs were $6.692 billion after inflows of $12.273 billion in the prior week; equity funds were the biggest losers as they experienced $16.2 billion of outflows.
If they come (to market) will they build it?
At $22.6 billion, April was the lowest month for new issue volume so far this year and the slowest April since 2011, Janney said in a Wednesday market comment.
“As political leadership in Washington agreed to a $2 trillion infrastructure plan, but postponed a decision on the most critical element – funding – it’s notable that the new-money portion of April supply, $13.1 billion, is the lowest monthly total since February of last year, which in turn was the slowest volume month of the past five years,” Janney said.
Janney said new-money data was important because it indicated a possible future trend.
“New-money loans (as opposed to refundings) are generally used to finance state and local capital and infrastructure plans, so the drop off indicates a reduced willingness to increase borrowing for infrastructure,” the report said.
Secondary market
Munis were stronger on the
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO muni fell one basis point while the 30-year muni yield dropped two basis points.
Treasuries were stronger as stocks traded little changed.
“A relative paucity of new supply is supporting the municipal market today, along with lower Treasury yields,” ICE Data Services said in a Wednesday afternoon comment. “The ICE Muni Yield Curve is three basis points lower at the long end. Reportedly, 17 new issues [were] scheduled to come to market today with a total amount of $1.1 billion. The relatively small amount issued doesn’t satisfy demand, creating downward pressure on muni yields generally. Tobaccos and high yield are one basis point lower. Taxable yields are down by 4.3 basis points in the 30-year, with smaller declines for shorter maturities.”
Previous session's activity
The MSRB reported 40,851 trades on Tuesday on volume of $12.56 billion. The 30-day average trade summary showed on a par amount basis of $12.096 million that customers bought $5.78 million, customers sold $4.11 million and inter-dealer trades totaled $2.21 million.
California, Texas and New York were most traded, with the Golden State taking 16.935% of the market, the Lone Star State taking 11.256% and the Empire State taking 9.439%.
The most actively traded security was the Puerto Rico Sales Tax Financing Corp. restructured Series A-1 5s of 2058 which traded 42 times on volume of $57.62 million.
Treasury to raise $28.6B new cash
The Treasury Department said it will raise $28.6 billion in new cash with its $84 billion quarterly refunding.
The Treasury said it will sell $19 billion 30-year bonds on May 10, $27 billion 10-year notes on May 8, and $38 billion 3-year notes on May 7. The issues all settle on May 15.
Gary E. Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
