The municipal bond market is set to see the bulk of the week's new issues hit screens on Tuesday as the Federal Reserve begins its two-day monetary policy meeting.
Secondary Trading
U.S. Treasuries were narrowly mixed on Tuesday. The yield on the two-year Treasury was unchanged from 1.14% on Monday, the 10-year Treasury fell to 2.45% from 2.48%, while the yield on the 30-year Treasury bond decreased to 3.13% from 3.17%.
Top-rated municipal bonds finished weaker on Monday. The yield on the 10-year benchmark muni general obligation rose five basis points to 2.36% from 2.31% on Friday, while the yield on the 30-year increased five basis points to 3.17% from 3.12%, according to the final read of Municipal Market Data's triple-A scale.
On Monday, the 10-year muni to Treasury ratio was calculated at 95.3% compared to 93.8% on Thursday while the 30-year muni to Treasury ratio stood at 100.3% versus 98.8%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 48,377 trades on Monday on volume of $10.34 billion.
BAML on Defaults, Bankruptcies: Muni Credit Strong
Municipal credit remains strong with Puerto Rico remaining the outlier, according to a report released on Monday by Bank of America Merrill Lynch Global Research.
Munis are showing no contagion from Puerto Rico so far this year, the report said, noting that as of Dec. 5, $27.23 billion in total outstanding par value of muni bonds entered into debt service payment default for the first time ($1.76 billion excluding Puerto Rico) versus $2.25 billion in full year 2015.
"Muni bonds in monetary default represent approximately 0.71% of total munis outstanding, compared with 0.0607% for the full-year 2015. Excluding Puerto Rico, the year-to-date default number is only $1.76 billion," Celena Chan, BAML municipal research strategist, wrote in the report. "As a whole, the Puerto Rican issuers account for almost all of the defaults year-to-date."
The breakdown of defaults for the year-to-date shows general obligation, general and facilities sectors accounted for a majority of the defaults. This was followed by defaults in the development (7.74%) and transportation (5.55%) sectors, the report stated.
"Analyzing defaults by state shows that Puerto Rico accounted for 93.54% of the total, followed by Illinois (1.46%) and Louisiana (1.09%)," Chan wrote.
Bankruptcy filings have been limited in 2016, according to the report.
"Since our last report [Sept. 23], there have been three new Chapter 9 filings: Pushmataha County -- City of Antlers Hospital Authority in Oklahoma filed [on Sept. 23]; West Contra Costa Healthcare District in California filed [on Oct. 20]; and, the Sanitary and Improvement District No. 476 in Douglas County, Nebraska filed [on Dec. 8]," Chan wrote. "Year-to-date, there have been six filings."
Primary Market
The week's new issue volume is estimated at $4.01 billion, consisting of $3.24 billion of negotiated deals and $771.2 million of competitive sales. Most of the week's deals will be jammed into Tuesday, ahead of the Federal Open Market Committee's announcement on interest rates on Wednesday.
On Tuesday, Citigroup is expected to price the New York State Housing Finance Agency's $223 million of affordable housing revenue bonds.
The issue is comprised of Series 2016H climate bond certified green bonds and Series 2016I revenue bonds. The deal is rated Aa2 by Moody's Investors Service.
Jefferies is expected to price the Westchester Tobacco Asset Securitization Corp., N.Y.'s $178.83 million of taxable Series 2016A tobacco settlement senior bonds and taxable Series 2016C tobacco settlement subordinate bonds as early as Tuesday.
Morgan Stanley is set to price the University of Pittsburgh's $200 million of revenue bonds on Tuesday.
In the competitive arena on Tuesday, the Minneapolis Special School District No. 1, Minn., will be selling about $125 million of bonds backed by the state's school district credit enhancement program in three separate offerings.
The deals consist of $56.09 million of Series 2016B general obligation long-term maintenance bonds, $46.43 million of Series 2016A GO school building bonds, and $23.77 million of Series 2016C full term certificates of participation.
All three deals are rated Aa1 by Moody's and AA-plus by S&P Global Ratings and Fitch Ratings.
On Wednesday, the Douglas County School District, Omaha Public, Neb., is competitively selling $141 million of Series 2016 GOs. The deal is rated Aa1 by Moody's and AAA by S&P.
Since 2009, the school district has sold about $538.9 million of debt, with the most issuance prior to this year occurring in 2015 when it also sold $141 million of bonds. The district did not come to market in 2011 or 2013.
Also this week, Barclays Capital is expected to price the Chicago Board of Education's $500 million of dedicated capital improvement tax bonds. There is no exact date for the sale, as the timing on the deal depends on market conditions. The bonds are rated A by Fitch and BBB by Kroll Bond Rating Agency.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $177.6 million to $9.24 billion on Tuesday. The total is comprised of $1.89 billion of competitive sales and $7.35 billion of negotiated deals.
