Top-shelf municipal bonds finished mixed on Friday, according to traders, ahead of the ahead of the biggest weekly supply calendar of the year. Long-term muni yields fell to a third straight record low.
The Primary Market
Total volume for the coming week is estimated by Ipreo at $11.30 billion, up from a revised total of $6.34 billion in the past week, according to Thomson Reuters data. The calendar includes $9.02 billion of negotiated deals and $2.28 billion of competitive sales.
The primary market will have a New York state of mind, as three of the four largest deals will be from issuers in the Empire State and a total of four New York issuers will alone account for close to $4 billion.
"The supply/demand has been out of balance – there have not been enough bonds relative for the demand," said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management, who noted money has flowed into the industry for 32 straight weeks.
Heckman said the yield curve continues to flatten and he doesn't see that changing anytime soon. Investors can't get 2% out 10 years on the curve, he said.
Citi is expected to run the books on the largest deal of the week and one of the largest of the year, as the New York Transportation Development Corporation will price its $2.5 billion deal for the LaGuardia Special Facilities Terminal B Redevelopment Project on Tuesday. It is anticipated that the deal will be split into roughly $2.35 billion of alternative minimum tax and $150 million of taxable. The deal is rated Baa3 by Moody's Investors Service and triple-B by S&P Global Ratings.
“If it’s priced right, there will be tremendous demand for it,” Heckman said. “There should be solid demand for it regardless, as there is more and more interest for infrastructure deals and airport deals than in the past. But having it priced appropriately is the key, as there is a significant search for yield and if done properly, you will see buyers come in and snap that up.”
With the biggest deal of the week being an infrastructure/airport deal, Heckman also argued that whoever gets into the White House should put a high priority on improving infrastructure and airports.
"The county has been under-investing in infrastructure and as you know, municipals and infrastructure go hand in hand," Heckman said. "There is desperate need to build our country, its fading and airports are not built to handle today's security issues and demand."
Goldman, Sachs is scheduled to price the Municipal Improvement Corporation of Los Angeles' $800.220 million of lease revenue refunding bonds on Wednesday, following a one day retail order period. The deal is rated A-plus by both S&P and Fitch Ratings and is also rated AA-minus by Kroll Bond Rating Agency.
Bank of America Merrill Lynch is slated to price New York City's $800 million of general obligation bonds on Wednesday, following a two day retail order period. The deal is rated Aa2 by Moody's and AA by both S&P and Fitch.
BAML is also planned to price the Metropolitan Transportation Authority's $500 million of dedicated tax fund green bonds on Thursday, following a one day retail order period. The green bonds are climate bond certified and the deal is rated AA by both S&P and Fitch.
The largest competitive sale of the week belongs to the Virginia College Building Authority, which plans $410.98 million of various educational facilities revenue and revenue refunding bonds on Wednesday, for the 21st century college and equipment programs.
Secondary Market
The yield on the 30-year general obligation fell two basis points to a record low of 2.42% from 2.44% on Thursday, according to the final read of Municipal Market Data's triple-A scale. On Wednesday, the 30-year muni yield hit 2.45%, eclipsing the previous low of 2.47% set in November 2012.
Meanwhile, the yield on the 10-year benchmark muni on Friday was steady from 1.54% on Thursday, according to MMD. Its all-time low of 1.47% was set in November 2012.
U.S. Treasuries were stronger. The yield on the two-year Treasury dipped to 0.75% from 0.76% on Thursday, while the 10-year Treasury yield dropped to 1.71% from 1.75% and the yield on the 30-year Treasury bond decreased to 2.55% from 2.61%.
The 10-year muni to Treasury ratio was calculated at 90.4% on Friday compared with 87.6% on Thursday, while the 30-year muni to Treasury ratio stood at 94.8% versus 93.4%, according to MMD.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended May 13 were from California and New York issuers, according to data
In the GO bond sector, the California 5s of 2026 traded 28 times. In the revenue bond sector, the New York State Thruway Authority 4s of 2056 traded 58 times. And in the taxable bond sector, the St. Lawrence Co. IDA, N.Y., 4.429s of 2056 traded 35 times, Markit said.
The Week's Most Actively Quoted Issues
California, New Jersey and Illinois issues were among the most actively quoted names in the week ended May 13, according to Markit.
On the bid side, the California taxable 7.5s of 2034 were quoted by 16 unique dealers. On the ask side, the New Jersey EDA revenue 5s of 2023 were quoted by 17 unique dealers. And among two-sided quotes, the Illinois taxable 5.1s of 2033 were quoted by 10 dealers.
Muni Bond Funds See Inflows for 32nd Week
For the 32nd straight week, municipal bond funds reported inflows, according to Lipper data released Thursday.
Weekly reporting funds saw $1.212 billion of inflows in the week ended May 11, after inflows of $709.727 million in the previous week, Lipper said. Long-term muni bond funds also experienced inflows, gaining $805.057 million in the latest week after inflows of $446.7076 million in the previous week.
National funds had inflows of $1.062 billion on top of inflows of $595.642 million in the previous week. High-yield muni funds reported inflows of $309.525 million in the latest reporting week, after inflows of $131.628 million the previous week.
