Muni market supply slides to less than $5B
Weekly municipal market volume is expected to sink back below $5 billion in the coming week, making it more challenging for investors to determine the appropriate prices for bonds.
Ipreo estimates volume will shrink to $4.8 billion, from the revised total of $7.59 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $3.98 billion of negotiated deals and $813 million in competitive sales.
“Although the calendar includes some high quality traditional credits (NYC, Clark Co., Texas water and perhaps California and Florida BOE and DOT), new issue based price discovery remains challenging since flow is light,” Alan Schankel, managing director and municipal strategist at Janney.
While there are no billion dollar deals, the schedule features 12 transactions $100 million or larger, with a few taxables mixed in to both the competitive and negotiated calendars. Three deals carry top-tier ratings, and unlike most weeks this year, the deal sizes are more consistent.
“With higher absolute yields and more attractive relative valuations, I think demand for high grade new issue deals should be pretty steady absent significant downward price volatility in Treasuries,” said Fred Bacani, partner and head of fixed income & trading at Veritable, LP. “The fact that dealer inventories are normalizing should help as a potential backstop.”
New York City is set to bring $850 million of negotiated general obligation and $250 million of taxable GO bonds competitively on Wednesday. Citi will run the books on the largest negotiated deal of the week, which is rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings.
“Demand for New York City should be strong,” Schankel said. “Some high tax states are seeing stronger demand in new era of limited state tax deductibility on federal returns, but GO spreads for weaker high tax states, such as CT and NJ, have actually widened a bit in recent weeks.”
RBC Capital Market is scheduled to price Clark County, Nevada’s $647.955 million GO limited tax stadium improvement bonds with additionally secured with pledged revenues on Wednesday. The deal that is for the Raiders future home in Las Vegas and is rated Aa1 by Moody’s and AA-plus by S&P.
Friday’s quiet atmosphere was impacted by the eventful week – which included the extended spring break, Easter, and Passover lull, the successful pricing and sale of the $3.2 billion New Jersey tobacco deal, and the release of the employment number.
“It’s a little more quiet than normal,” a New York trader said on Friday afternoon.
The New Jersey tobacco deal – the showstopper of the week – traded up 10 to 20 basis points in spots, and the final 2046 maturity, which was rated triple-B, was priced with a 5% coupon to yield 4.90%.
The trader said a lot the bonds were purchased by mutual funds, insurance companies, and hedge funds, he noted.
“You had a lot of those [tobacco] bonds being placed pretty darn well, and not as much secondary trading as you normally would think with a $3 billion deal,” he said.
“You would usually see some follow-through in the secondary with the arbs having the bonds, and I really didn’t see a whole heck of a lot of arbs with these bonds,” he said. “There wasn’t a lot of paper around and a lot of it was put away to the fund and insurance companies.”
Adding to the lackluster activity on Friday was the news of the unchanged unemployment rate of 4.1% for March and that businesses added 103,000 for the month, which sharply contrasted with February’s addition of 326,000 jobs.
In addition, the unemployment figures came “smack dab” in the midst of stock market volatility, as Treasuries yielded 2.79% at midday and triple-A general obligation bonds in 2028 were bumped zero to one basis point following Thursday’s close at 2.45%, according to Municipal Market Data.
The trader said next week’s calendar potentially includes two large, market friendly issuers – New York City and the state of California – both of which are slated to sell general obligation offerings that should entice supply hungry buyers.
The city is selling $850 million of tax-exempt GOs on Wednesday through a negotiated deal with book-runner Citigroup, while there was also talk of California’s $1.2 billion of taxable GOs pricing the week of April 9 as well.
Judging by the demand for new issues in recent weeks – including this week’s New York City Municipal Water Authority deal – the offerings should be highly sought after.
Like the tobacco deal, the New York water deal was snapped up quickly as there was little evidence of paper around in the secondary market on Friday, according to the New York trader.
“People are still looking to get paper because supply isn’t what it normally is,” he said. “Spreads continue to tighten, and there was not a lot of secondary trading on the waters, so they were pretty well put away.”
Given the supply-demand imbalance, the trader said any deals that are priced right will find a home.
Week's actively traded issues
Some of the most actively traded bonds by type in the week ended April 6 were from Kansas, New Jersey and Idaho issuers, according to Markit.
In the GO bond sector, Wichita, Kan., 1.75s of 2019 traded 36 times. In the revenue bond sector, the N.J. Tobacco Settlement Financing Corp. 5s of 2046 traded 154 times. And in the taxable bond sector, the Idaho Building Authority 4.124s of 2039 traded 13 times.
Week's actively quoted issues
Ohio, Texas and California names were among the most actively quoted bonds in the week ended April 6, according to Markit.
On the bid side, the Ohio Air Quality Development Authority revenue 5.7s of 2020 were quoted by 42 unique dealers. On the ask side, the Dallas Area Rapid Transit revenue 5s of 2046 were quoted by 113 dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 221 unique dealers.
Previous session's activity
The Municipal Securities Rulemaking Board reported 46,020 trades on Thursday on volume of $17.45 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 17.51% of the market, the Empire State taking 12.242% and the Lone Star State taking 7.582%.
Lipper: Muni bond funds saw outflows
Investors in municipal bond funds made an about face and pulled cash out of the funds in the latest week, according to Lipper data released on Thursday.
The weekly reporters saw $247.111 million of outflows in the week ended April 4, after inflows of $36.792 million in the previous week.
Exchange traded funds reported inflows of $25.411 million, after inflows of $36.581 million in the previous week. Ex-ETFs, muni funds saw $272.521 million of outflows, after inflows of $211,000 in the previous week.
The four-week moving average remained positive at $143.568 million, after being in the green at $307.034 million 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 had inflows of $85.357 million in the latest week after inflows of $131.694 million in the previous week. Intermediate-term funds had outflows of $29.999 million after inflows of $8.581 million in the prior week.
National funds had outflows of $166.142 million after inflows of $132.287 million in the previous week. High-yield muni funds reported inflows of $186.428 million in the latest week, after inflows of $153.850 million the previous week.
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.