Top shelf municipal bonds finished weaker on Friday, according to traders, as yields moved off their record lows. Traders and other market participants will focus their attention on a nearly $8.2 billion calendar for the coming week, which will feature mostly "good sized deals with a little something for everyone," according to Dawn Mangerson at McDonnell Investment Management.
Primary Market
Total volume for the week ahead is estimated by Ipreo at $8.16 billion, up from a revised total of $5.27 billion in the past week, according to Thomson Reuters data. The calendar includes $6.42 billion of negotiated deals and $1.74 billion of competitive sales.
The average weekly volume this year is $7.6 billion, according to Daniel Berger, Municipal Market Data's Senior Market Strategist.
Demand for municipals is still very strong after a week in which record lows were set for both the 30-year and 10-year triple-A MMD scales.
"The calendar has some decent sized deals but nothing to write home about," said Mangerson, senior portfolio manager at McDonnell. "The deals will be easily placed, as there lots of good, mid-sized deals."
The two biggest sales of the week will come from the Golden State.
The city of Los Angeles is coming with $1.46 billion of tax and revenue anticipation notes, which are expected to be priced by Morgan Stanley on Tuesday. The deal is rated MIG1 by Moody's Investors Service SP1-plus by S&P Global Ratings and F1-plus by Fitch Ratings.
Wells Fargo Securities is scheduled to price the University of California Regents' $513.99 million of limited project revenue bonds on Wednesday. The deal is expected to feature both taxable and tax-exempts, with the exempt portion starting at 2017 and running through 2038, with term bonds in 2040, 2046 and 2051. The taxable portion is scheduled to start in 2017 and run through 2034, with term bonds in 2039 and 2046. The deal is rated Aa3 by Moody's and AA-minus by both S&P and Fitch.
Morgan Stanley is on the docket to price the New York City Metropolitan Transportation Authority's $507.45 million of revenue refunding bonds on Wednesday, following a one day retail order period.
Barclays is slated to price the state of Connecticut Health and Educational Facilities Authority's $500 million of revenue bonds for Yale University on Wednesday. The deal is rated triple-A by Both Moody's and S&P.
"There is not enough [supply] coming next week to satisfy demand, the deals this past week were way [oversubscribed] and that just speaks to the demand," Mangerson said.
After those four deals, there are 18 deals in the $100-$300 million range. Mangerson said refundings haven't been as brisk as expected.
"We are not seeing the refundings because of negative arbitrage," she said. " We need to see a rise in yields, which would be good for the market and its participants as then we would see more volume into the market."
Jim Grabovac, senior portfolio manager at McDonnell, said yields may rise if Britain votes to stay in the European Union.
"This vote is a factor that will continue to weigh on the market until it is decided," he said. "Now that it is pretty Indicative that July is off the table as far as a hike goes, Yellen spoke about wanting to see several months of momentum before moving forward, so it seems logical that there will be one hike this year, either before or after the [U.S.] election."
The largest competitive sale of the week will be a $234.39 million offering from the Virginia College Building Authority on Tuesday. The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
"Although it's an excellent choice and good timing for foreign investors they are making it harder for the traditional muni investors, as now they have more competition and that is interesting because we haven't experience a great deal of that," Mangerson said.
Secondary Market
The yield on 10-year benchmark muni general obligation rose one basis point to 1.43% from a record low of 1.42% hit on Thursday, while the 30-year muni yield increased one basis point to 2.14%, up from its record low level of 2.13%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker. The yield on the two-year Treasury rose to 0.70% on Friday from 0.68% on Thursday, while the 10-year Treasury yield gained to 1.62% from 1.56% and the yield on the 30-year Treasury bond increased to 2.43% from 2.38%.
The 10-year muni to Treasury ratio was calculated at 88.5% on Friday compared to 87.5% on Thursday, while the 30-year muni to Treasury ratio stood at 88.1% versus 88.0%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended June 17 were from Texas, Massachusetts and New York,
In the GO bond sector, the Harris County, Texas 5s of 2047 were traded 32 times. In the revenue bond sector, the Mass. Development Finance Agency 5s of 2043 were traded 38 times. And in the taxable bond sector, the DASNY 3.879s of 2046 were traded 14 times.
Week's Most Actively Quoted Issues
California and North Carolina issues were among the most actively quoted names in the week ended June 17, according to Markit.
On the bid side, the California taxable 7.55s of 2039 were quoted by 12 unique dealers. On the ask side, the Univ. of N.C. at Wilmington GO 3s of 2036 were quoted by 16 unique dealers. And among two-sided quotes, the California taxable 7.6s of 2040 were quoted by 15 dealers.
Requests for New Muni CUSIPs Up 21% in May
Demand for new municipal CUSIP identifiers rose 21% in May, the fourth straight monthly increase, CUSIP Global Services said in a report released on Thursday.
A total of 1,740 new municipal bond identifier requests were made in May, up from 1,443 in April. On a year-over-year basis, however, May municipal bond identifier requests were down by 2%.
Long-term muni note CUSIP orders rose to 36 in May, compared to 26 requests in March. Short-term note muni CUSIP volume fell to 62 in May from 83 in April.
The report tracks requests by issuers for bond identifiers as an early indicator of new volume and suggests a resurgence of municipal issuance in the next several weeks.
"The sheer volume of requests for IDs for new debt instruments is sending a clear signal that issuers are indeed gearing up for new offerings," Gerard Faulkner, Director of Operations for CUSIP Global Services, said in a press release. "While, at the absolute level, we're still behind where we were at this time last year, the recent trend in month-to-month increases has become hard to ignore."
Regionally, municipal bond issuers in Texas requested the highest volume of new identifiers in May, accounting for 171 CUSIP requests. In the first five months of this year, Texas issuers accounted for the most CUSIP requests at 782, or 10% of total volume. New York came in second with 544 requests.
Muni Bond Funds Again See Inflows
For the 37th straight week, municipal bond funds reported inflows, according to Lipper data released Thursday. Weekly reporting funds saw $904.450 million of inflows in the week ended June 15, after inflows of $852.457 million in the previous week, Lipper said.
The four-week moving average remained positive at $795.129 million after being in the green at $880.275 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 also experienced inflows, gaining $695.817 million in the latest week after inflows of $700.430 million in the previous week. Intermediate-term funds had inflows of $165.993 million after inflows of $212.204 million in the prior week.
National funds had inflows of $767.037 million on top of inflows of $718.562 million in the previous week. High-yield muni funds reported inflows of $323.779 million in the latest reporting week, after inflows of $470.952 million the previous week.
Exchange traded funds saw inflows of $83.241 million, after inflows of $134.964 million in the previous week.
