Munis ended Friday mostly stronger, as yields were lower on all maturities with the exception of 2017, which was two basis points higher. Yields on some maturities fell as much as four basis points, according to traders, who are looking ahead to next week's $12.7 billion of estimated volume next week, which includes a record of nearly $6 billion of competitive deals.
Primary Market
Total volume for the coming week is estimated by Ipreo at $12.71 billion, more than three times the revised total of $3.95 billion in the past holiday shortened week, according to Thomson Reuters data. The calendar includes $7.29 billion of negotiated deals and $5.42 billion of competitive sales. Dalcomp's calendar on Thursday showed more than $6 billion of competitive deals on tap.
Daniel Berger, Municipal Market Data's Senior Market Strategist said though it might have looked as if issuers were rushing to market, a disappointing jobs report Friday might change that.
"Supply for this week will increase, in order to beat a possible tightening by the FOMC," he said. "This scheduled volume is well above the 2016 average of $7.3 billion. However, it is noteworthy that this week's employment report may decrease the chances of a Fed move until July or September."
Berger also noted the calendar of competitive loans.
"This is the highest volume of competitive loans in history," he said. "Presumably many of these obligors want to sell their debt before the Fed engages in some tightening. Please note that this calendar is subject to change and may slow down as the market assesses the May employment report which highlighted the fact that the economy is moving at a slower pace than earlier thought."
The largest single sale of the week will come from Maryland. On Wednesday the state will sell $1.04 billion of state and local facilities Loan of 2016, first series GOs which are rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings.
On Tuesday, Georgia will competitively sell about $1.37 billion of bonds in five separate offerings. The deals include $382 million of Series 2016C-1 and C-2 general obligation refunding bonds, $362 million of Series 2016A Tranche 1 GOs, $356 million of Series 2016A Tranche 2 GOs, $200 million of Series 2016B taxable GOs, and $68 million of Series 2016D taxable refunding GOs.
In the negotiated arena, the preliminary slate is topped by the New York Transportation Development Corp.'s $850 million of special facility revenue refunding AMT bonds for the American Airlines JFK Project and Harris County, Texas' $514 million of toll road senior lien revenue refunding bonds to be priced by Loop Capital Markets.
"The chase for yield certainly helped the NY Trans for LaGuardia deal, which lowered yields by as much as 15 basis points on the way to final pricing," said Alan Schankel, municipal strategist at Janney. "With persistent mutual fund inflows and the summer bump in reinvestment funds ahead, I think demand for the JFK deal will also be very strong. "
A New York trader said that while the deals are similar, they have different credits which could affect how the deal does.
"I believe it is a BB credit as opposed to Baa3/BBB for LaGuardia, so my guess is that could eliminate some of the buyers and flippers. So it may not see the same level of oversubscription that the LGA deal saw," he said.
Also on the negotiated slate are the Greater Chicago Metropolitan Water District's $432 million of Series A, B, C, D, E, F GO green bonds to be priced by Bank of America Merrill Lynch; the District of Columbia's $422 million of Series 2016A GO to be priced by JPMorgan Securities; the Pennsylvania State University's $2349 million of Series 2016B refunding bonds to be priced by Barclays Capital; and the Texas University Board of Regents' $215 million revenue bonds to be priced by Citigroup.
On the short-term negotiated calendar, Wells Fargo Securities is set to price Los Angeles County's $800 million of tax and revenue anticipation notes while Piper Jaffray is slated to price Idaho's $514 million of tax anticipation notes.
The trader said that his thoughts are and have always been that in times of positive technical & strong demand, like we have now, that an increase in supply actually helps rather than hurts the market.
"It's somewhat counterintuitive, but the extra availability will drive more competition and/or more group mentality in terms of buying bonds. So yes I do think deals will be oversubscribed, unless grossly mispriced, which is unlikely," the New York trader said.
Secondary Market
Top-shelf municipal bonds were mostly higher at Friday's close. The yield on 10-year benchmark muni general obligation was four basis points lower to 1.62% from 1.66% on Thursday, while the 30-year muni yield was three basis points lower to 2.40% from 2.43% on Thursday, according to a read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger at Friday's close. The yield on the two-year Treasury fell to 0.78% from 0.88% on Thursday, while the 10-year Treasury yield declined to 1.70% from 1.81% and the yield on the 30-year Treasury bond decreased to 2.52% from 2.58%.
The 10-year muni to Treasury ratio was calculated at 95.1% on Friday compared to 91.8% on Thursday, while the 30-year muni to Treasury ratio stood at 95.3% versus 94.0%, according to MMD.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended June 3 were from Massachusetts and New York issuers, according to data released by Markit.
In the GO bond sector, the Massachusetts Educational Financing Authority 3.5s of 2033 were traded 29 times. In the revenue bond sector, the Dormitory Authority of the State of New York 4s of 2043 were traded 37 times. And in the taxable bond sector, the Dormitory Authority of the State of New York 3.879s of 2046 were traded 66 times, Markit said.
The Week's Most Actively Quoted Issues
California and Illinois issues were among the most actively quoted names in the week ended June 3, according
On the bid side, the California taxable 7.5s of 2034 were quoted by 11 unique dealers. On the ask side, the California taxable 7.55s of 2039 were quoted by 13 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 15 dealers.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $585.9 million to $16.55 billion on Friday. The total is comprised of $7.64 billion of competitive sales and $8.91 billion of negotiated deals.
Muni Bond Funds See Inflows for 35th Week in a Row
For the 35th straight week, municipal bond funds reported inflows, according to Lipper data released Thursday.
Weekly reporting funds saw $473.159 million of inflows in the week ended June 1, after inflows of $950.449 million in the previous week, Lipper said.
The four-week moving average remained positive at $970.242 million after being in the green at $1.029 billion 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 $291.408 million in the latest week after inflows of $630.989 million in the previous week. Intermediate-term funds had inflows of $104.528 million after inflows of $217.643 million in the prior week.
National funds had inflows of $448.237 million on top of inflows of $916.041 million in the previous week. High-yield muni funds reported inflows of $178.633 million in the latest reporting week, after inflows of $333.190 million the previous week.
Exchange traded funds saw inflows of $92.783 million, after inflows of $110.156 million in the previous week.
