Municipal bonds strengthened Tuesday as the primary market shifted to holiday mode after breaking the December record for issuance with $58.59 billion.
The municipal market will be staffed by skeleton crews this week as the calendar shows no negotiated deals and less than $3 million of competitive transactions — and another long holiday weekend right around the corner.
The MBIS municipal non-callable 5% GO benchmark scale was stronger in trading through Tuesday’s market close.
The 10-year muni benchmark yield dipped to 2.345% from Friday's final read of 2.373%, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield dropped to 2.823% from 2.837%.
The MBIS benchmark index, which is comprised of investment-grade municipal securities, is updated hourly on the Bond Buyer Data Workstation.
Top-rated municipal bonds ended Tuesday stronger. The yield on the 10-year benchmark muni general obligation was three basis points lower to 2.07% from 2.10% on Friday, while the 30-year GO decreased by five basis points to 2.63% from 2.68%, according to a final read of MMD’s triple-A scale.
U.S. Treasuries were mostly stronger at the close on Tuesday. The yield on the two-year Treasury nudged up to 1.90% from 1.89%, the 10-year Treasury yield decreased to 2.46% from 2.49% and the yield on the 30-year Treasury fell to 2.81% from 2.84%.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 83.8% compared with 84.4% on Friday, while the 30-year muni-to-Treasury ratio stood at 93.3% versus 94.4%, according to MMD.
Previous week's top underwriters
The top municipal bond underwriters of last week included Morgan Stanley, Jefferies, Goldman Sachs, JPMorgan and Citi, according to Thomson Reuters data.
In the week of Dec. 10 to Dec. 16, Morgan Stanley underwrote $1.49 billion, Jefferies $1.30 billion, Goldman $1.28 billion, JPM $1.01 billion, and Citi $865 million.
The market will see no large deals this week, with action expected to resume in 2018. The tax bill caused an onslaught of issuance the past five weeks. Now, the muni market will look different in the New Year.
“An important consequence of the Tax Cuts and Jobs Act for municipal market observers will be its impact on total municipal bond market issuance for next year,” said Tom Kozlik, managing director and municipal strategist at PNC. “The elimination of advance refundings will derail the market dynamic for a short time, but we expect the market to recapture the unrealized refundings in the coming years. We expect market dynamics to adjust rather quickly, but buyer behavior should be monitored.”
Kozlik lowered his 2018 volume forecast to $295 billion from $315 billion. The projected volume would be comprised of $210 billion of new money and only $85 billion of refunding issuance.
“Total issuance for this year is going to come in somewhere between $420 billion and $430 billion. That means that about $50 billion of issuance was accelerated into the end of November and December,” he said. “For 2018, working backwards and assuming a starting point of an unaltered forecast of $400 billion – we think there will be $50 billion less for the accelerated issues, and about $55 billion less of advance refundings that would have been executed in 2018.”
Prior week's actively traded issues
Revenue bonds comprised 55.91% of new issuance in the week ended Dec. 22, up from 55.23% in the previous week, according to Markit. General obligation bonds made up 38.53% of total issuance, up from 38.47%, while taxable bonds accounted for 5.56%, down from 6.30% a week earlier.
Some of the most actively traded bonds by type were from Puerto Rico, New Jersey and Texas issuers.
In the GO bond sector, the commonwealth of Puerto Rico 8s of 2035 were traded 54 times. In the revenue bond sector, the New Jersey Turnpike Authority 4s of 2043 were traded 87 times. And in the taxable bond sector, the Houston 3.961s of 2047 were traded 30 times.
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 Vanessa Kim at 212-803-8474 for more information.