Muni market awaits FOMC, new sales

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Municipals were stronger in quiet activity on Monday as the market looks ahead to new competitive sales as well as events in Washington and New York.

The Federal Open Market Committee will start its two-day monetary policy meeting in D.C. on Tuesday and is not expected to alter interest rates, but observers will pay close attention to any discussion of balance-sheet reduction for hints of flexibility.

In New York, The Bond Buyer holds its National Outlook Conference on Tuesday. Experts will unveil their expectations for the market this year and discuss infrastructure financing, fiscal policy, the effects of tax reform as well as regulatory developments, technology and pension funding.

Primary market
On Thursday, the New York Metropolitan Transportation Authority will sell over $1 billion of securities in two competitive sales.

The offerings consist of $462.8 million of Series 2019A transportation revenue climate bond certified green bonds and $750 million of transportation revenue bond anticipation notes

Moody's Investors Service rates the bonds A1 and assigns a MIG1 rating to the BANs while Kroll Bond Rating Agency assigns an AA-plus rating to the bonds and a K1-plus rating to the BANs.

“The MTA provides critical transportation system services for 15.3 million people in the 5,000-square-mile New York City metropolitan area,” Kroll said in a rating report released Monday. “In KBRA’s view, the system is an essential element of the economic framework of the metropolitan area, which is also New York State’s largest population center and largest economic base.”

MTA has the largest subway car fleet in the world and operates more buses than any other public agency in North America; the system carried 2.3 billion passengers on its transit and commuter lines in 2017 and 309.9 million vehicles crossed its toll bridges and tunnels; and the system operates over 2,000 track route miles, 2,900 bus route miles, and employs over 73,000 people.

The city has an estimated residential population of 8.6 million and its employment base is generally stable and diverse, Kroll said. While financial services and professional services remain the major economic drivers in the city, KBRA noted six of the 10 top private-sector employers are in healthcare and higher education. The city had an unemployment rate of 4.1% in 2018, which is lower than the state’s 4.2% but higher than the nation’s 3.9%.

“While not losing sight of the significant strengths provided by the essential nature of the MTA transportation services and the gross revenue pledge which covers debt service over 8.7x, KBRA has grown concerned regarding the inability of MTA’s political leadership to build consensus and begin executing plans to address MTA’s worsening operational and revenue trends,” Kroll said. “Ridership declines are now showing a consistent multi-year downward trend despite years of robust growth in the New York metropolitan area economy. The ridership declines are caused by delays, disruptions, overcrowding, and, most important, the expanding popularity of alternatives such as rideshare services and biking. While all these issues are complex, KBRA believes they can be addressed once legislative and other elected leaders develop the urgency to do so.”

On Monday, the Wauwatosa School District in Wisconsin sold $124.9 million of general obligation school building and improvement bonds in two offerings.

Bank of America Merrill Lynch won the $63 million of Series 2019A GOs with a true interest cost of 3.1051%; JPMorgan Securities won the $61.9 million of Series 2019B GOs with a TIC of 2.0298%. Proceeds will be used to finance various school improvements .

The financial advisor is Robert W. Baird; the bond counsel is Quarles & Brady. The deals are rated Aa1 by Moody’s.

On Tuesday, Fairfax County, Va., plans to sell $270.3 million of public improvement bonds and refunding bonds in two offerings consisting of $225.395 million of Series 2019A bonds and $44.88 million of Series 2019 taxable refunding bonds. Proceeds will be used to finance various public and school improvements and to refund some outstanding debt. The financial advisor is PFM Financial Advisors; the bond counsel is Norton Rose. The deal is rated triple-A by Moody’s, S&P Global Ratings and Fitch Ratings.

Shelby County, Tenn., will sell $243.325 million of GO public improvement and school bonds in two offerings consisting of $170.865 million of Series 2019A GOs and $72.46 million of Series 2019B GO refunding bonds. Proceeds will be used to finance various capital and school improvements and to redeem some outstanding debt. Financial advisors are ComCap Partners and PFM Financial Advisors; the bond counsel is Butler Snow. The deal is rated AA-plus by S&P and Fitch.

The Broward County School District, Fla., will sell $175.845 million of Series 2019 GO school bonds. Proceeds will be used for the acquisition, construction, renovation and equipping of educational facilities within the School District, including safety enhancements and instructional technology upgrades. The financial advisor is PFM Financial Advisors; the bond counsel are Greenberg Traurig and Edwards & Feanny. The deal is rated AA-minus by Fitch.

Bond Buyer 30-day visible supply at $6.37B
The Bond Buyer's 30-day visible supply calendar increased $811.0 million to $6.37 billion for Monday. The total is comprised of $2.40 billion of competitive sales and $3.97 billion of negotiated deals.

Prior week's actively traded issues
Revenue bonds comprised 55.69% of total new issuance in the week ended Jan. 25, down from 56.52% in the prior week, according to Markit. General obligation bonds made up 38.42%, up from 37.91% while taxable bonds accounted for 5.89%, up from 5.57%.
Some of the most actively traded munis by type in the week were from Texas, New York and Illinois issuers.

In the GO bond sector, the Birdville Independent School District, Texas, 3.75s of 2044 traded 24 times. In the revenue bond sector, the New York City Municipal Water Finance Authority 5s of 2024 traded 39 times. In the taxable bond sector, the Chicago Sales Tax Securitization Corp. 4.787s of 2048 traded 38 times.

Secondary market
Municipal bonds were stronger Monday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 12-year, 14- to 27-year and 29-year maturities and remained unchanged in the 13-year, 28-year and 30-year maturities.

High-grade munis were stronger, with muni yields falling as much as one basis point in the one- to 11-year and 15- to 30-year maturities, rising less than a basis point in the 12-year maturity and remaining unchanged in the 13- and 14-year maturities.

Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on 30-year muni maturity remaining unchanged.

Treasury bonds were mixed as stock prices were lower.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 81.0% while the 30-year muni-to-Treasury ratio stood at 101.2%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury 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.

Previous session's activity
The Municipal Securities Rulemaking Board reported 37,381 trades on Friday on volume of $12.69 billion.

California, Texas and New York were the municipalities with the most trades, with the Golden State taking 15.236% of the market, the Lone Star State taking 13.875% and the Empire State taking 12.149%.

Foreign Treasury holdings drop
Foreign holdings of U.S. Treasuries dropped in October as China and Japan continued to sell, according to a report released Monday by Societe Generale.

“Overall holdings were down by $25.6 billion, led by the largest monthly decline in official account holdings (-$62.9 billion) since November 2016 as global reserves continued to decline,” the report said.

In a fifth straight monthly decline, China’s holdings fell $12.5 billion to $1.14 trillion, the lowest level since May 2017. China’s foreign reserves dropped $33.9 billion in October, the largest monthly decline since December 2016.

For the third month in a row, Japan cut its holdings, by $9.5 billion to $1.02 trillion, the lowest level since October 2011.

Meanwhile, primary dealers decreased their total holdings of US Treasury securities after taking them to highest level on Jan. 2. This was supported by the reduction in holdings of bills, to the lowest level since March 2017, and coupons maturing in the two- to 11-year sector.

Treasury sells notes, bills
The Treasury Department Monday auctioned $40 billion of two-year notes with a 2 1/2% coupon at a 2.600% yield, a price of 99.806335. The bid-to-cover ratio was 2.56.

Tenders at the high yield were allotted 8.00%. The median yield was 2.577%. The low yield was 2.500%.

Treasury also auctioned and $39 billion 182-day discount bills at a 2.450% high rate. The coupon equivalents was 2.515%. The price was 98.761389.

The median bid was 2.435% and the low bid was 2.400%. Tenders at the high rate were allotted 40.89%. The bid-to-cover ratio was 3.09.

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. 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 Metropolitan Transportation Authority Fairfax County County of Shelby, TN School Board of Broward County, FL New York City Municipal Water Finance Authority State of New York State of California State of Texas Chicago Sales Tax Securitization Corp
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