Muni yields were unchanged on Friday after a very sleepy day, as most market participants have already started their long weekends.
Primary Market
Total volume for the coming week is estimated by Ipreo at $4.57 billion, down from a revised total of $8.23 billion in the past week, according to Thomson Reuters data. The calendar includes $3.02 billion of negotiated deals and $1.55 billion of competitive sales.
In observance of Memorial Day, the market will be closed on Monday, giving the muni market only four days of activity next week.
"It is a very interesting time for munis specifically: Is June on or off the table as far as the Fed is concerned and we are at a crossroads beginning in June with a major shift in technicals, with the largest redemption month of the year (June) followed by the next two biggest with July and August," said John Dillon, muni strategist and Managing Director for Morgan Stanley Wealth Management.
"We will have roughly half the issuance that we have been seeing," in the coming week, he said. "If Treasuries stay where they are, it should give underwriters a chance to clean up."
Dillion also said 10-year Muni-to-Treasury ratios are at the highest they have been since mid-April and this year's torrent of fund inflows points to muni outperformance into and through the summer.
"We could be looking at a window of opportunity to buy bonds while they are available and still cheap relative to treasuries. It will be a chance to buy bonds before the market tightens up and while the investor sentiment is feeling a bit unsettled and concerned about the June FOMC meeting," he said.
Pennsylvania will have the biggest sale of the week, bringing $990.55 million of general obligation bonds via a competitive sale on Wednesday. It is anticipated that the deal will be roughly $355 million of GO bonds and $635.55 million of GO refunding bonds. The deal is rated Aa3 by Moody's Investors Service and AA-minus by both S&P Global Ratings and Fitch Ratings.
As of early afternoon Friday, the Keystone state deal was the only competitive sale on the calendar that is larger than $100 million.
In the negotiated sector, the Dormitory Authority of the State of New York will be coming to market with two separate sales, both on Thursday.
The larger of the deal twos will be priced by Morgan Stanley and consists of $589.98 million of New York University revenue bonds.
The other sale will be priced by Wells Fargo Securities and consists of $246.375 million of NYU taxable revenue bonds. The deal is expected mature serially from 2018-2022 as well as a term bond in 2046.
Both deals are rated Aa3 by Moody's and AA-minus by S&P.
Citi will run the books on the city of El Paso, Tx.'s $251 million of GO and combination tax and revenue bonds on Thursday. The deal is scheduled to mature serially from 2026-2042. The deal is rated AA by both S&P and Fitch.
Bank of America Merrill Lynch is scheduled to price the Rhode Island Commerce Corporation's $229 million of Rhode Island Department of grant anticipation refunding bonds on Thursday following a one day retail order period. The deal is rated A2 by Moody's and AA-minus by S&P.
Those are the only deals on the calendar that are larger than $200 million and there are only six other deals on the current docket that are larger than $100 million.
Dillon added that due to rallies in both treasuries and munis, we have had a good total return year so far. He noted that the Barclays total return is at 2.66%, which 'is pretty solid' and that the seasonal aspects of the market will likely be on full display in the coming months.
"There is enough demand that next week people will be engaged despite the smaller calendar. I think there will be plenty of activity in the secondary and even in the primary market, the demand will still be there," Dillon said. "There is money to spend and there will be much more to come. Even if we get a little treasury weakness, munis will still likely outperform, not only because that's what they have been doing, but because there is all this pent up money and more coming in."
Secondary Market
Top shelf municipal bonds were unchanged on Friday, traders said, as the market moved through a quiet, holiday-shortened trading session.
The yield on 10-year benchmark muni general obligation was steady from 1.66% on Thursday, while the 30-year muni yield was unchanged from 2.45%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker in late Friday trade. The yield on the two-year Treasury rose to 0.88% from 0.87% on Thursday, while the 10-year Treasury yield gained to 1.83% from 1.82% and the yield on the 30-year Treasury bond increased to 2.64% from 2.63%.
The 10-year muni to Treasury ratio was calculated at 90.5% on Friday compared to 91.2% on Thursday, while the 30-year muni to Treasury ratio stood at 92.8% versus 93.2%, according to MMD.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended May 26 were from New York and Virginia issuers, according to data released
In the GO bond sector, New York City 4s of 2033 traded 67 times. In the revenue bond sector, the N.Y. MTA 5s of 2036 traded 55 times. And in the taxable bond sector, the Virginia HAD 3.1s of 2041 traded 21 times, Markit said.
The Week's Most Actively Quoted Issues
California and Puerto Rico issues were among the most actively quoted names in the week ended May 26, according to Markit.
On the bid side, the California taxable 7.5s of 2034 were quoted by 10 unique dealers. On the ask side, the Los Angeles Airport revenue 4s of 2036 were quoted by 16 unique dealers. And among two-sided quotes, the Puerto Rico GO 8s of 2035 were quoted by nine dealers.
Muni Bond Funds See Inflows for 34th Week in a Row
For the 34th straight week, municipal bond funds reported inflows, according to Lipper data released Thursday.
Weekly reporting funds saw $950.449 million of inflows in the week ended May 25, after inflows of $1.245 billion in the previous week, Lipper said.
The four-week moving average remained positive at $1.029 billion after being in the green at $1.085 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 $630.989 million in the latest week after inflows of $738.463 million in the previous week. Intermediate-term funds had inflows of $217.643 million after inflows of $388.056 million in the prior week.
National funds had inflows of $916.041 million on top of inflows of $1.209 billion in the previous week. High-yield muni funds reported inflows of $333.190 million in the latest reporting week, after inflows of $372.212 million the previous week.
Exchange traded funds saw inflows of $110.156 million, after inflows of $200.238 million in the previous week.
