Municipal market participants will be getting something they have not seen in quite some time: significant issuance.
Primary Market
Ipreo estimated volume for the upcoming week at $8.7 billion, up from a revised total of $625.2 million in the past week, according to Thomson Reuters, whose data may not include some issues that priced but didn't close before its Friday report. The calendar for the coming week is made up of $6.70 billion of negotiated deals and $2.04 billion of competitive sales.
"Demand factors are pointing in the right direction. Outflows are slowing down, plus you have the January reinvestment period happening," said Gary Binkiewicz, senior vice president and head municipal bond analyst at R. Seelaus and Co. "The calendar will be well received."
Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management agreed, saying that there will be a very strong appetite for the supply.
"Market conditions and tones have improved and a lot of cash on the sidelines waiting to get to work," Heckman said. "It certainly has been a while since we have seen this much issuance. I think the market will be welcoming the supply with open arms."
The biggest scheduled negotiated deal on the calendar is the Triborough Bridge and Tunnel Authority's $665 million of general revenue and refunding bonds. Goldman Sachs will be running the books on the transaction that is expected to price on Thursday. The deal is rated Aa3 by Moody's Investors Service, AA-minus by Fitch Ratings and AA by Kroll Bond Rating Agency.
Ramirez is slated to price the state of Wisconsin's $523.635 million of general fund annual appropriation of Series A federal taxable bonds and Series B of tax-exempts on Thursday. The deal is rated Aa3 by Moody's, AA-minus by S&P Global Ratings and Fitch and AA-minus by Kroll.
In the competitive arena, Washington State will offer three separate deals totaling $662 million on Tuesday, with the bulk it coming in one sale.
The largest sale is expected to be $437.42 million of various purpose general obligation bonds. The second largest will consist of $139.02 million of various purpose GO refunding bonds and the last deal will be $49.965 million of state motor vehicle fuel tax GO bonds and refunding bonds. All three deals are rated Aa1 by Moody's and AA-plus by S&P and Fitch.
Another deal that a lot of market participants will be looking at is Trinity Health Credit Group's $333.87 million of composite issue for Michigan, Idaho, Maryland and Ohio. Goldman will serve as underwriter on the deal, which is scheduled to price on Tuesday and is rated Aa3 by Moody's and Aa-minus by S&P and Fitch.
The deal is broken into different series being issued through the Michigan Finance Authority, the Maryland Health and Higher Educational Facilities Authority, the Idaho Health Facilities Authority, and Franklin County, Ohio – conduit issuers in states with Trinity facilities.
"I will be watching for the Trinity deal – it will be interesting to watch because of Obamacare and potential repeal or restructuring," said Binkiewicz. "There has been a lot of talk about what might happen but we don't really know. However, it doesn't appear the sickle approach is realistic. Pieces of it might change but not the whole thing, and the market is coming to realize that."
Heckman said that he doesn't know if all the recent news surrounding a repeal of the Affordable Care Act will have much impact on the upcoming bond sale.
"Healthcare related issuance is always watched closely but especially now, so that we can get a sense of what may play out about the relative attractiveness of health care bonds," he said. "But I would be surprised if its impacts the sale one way or another."
Secondary Market
Top shelf municipal bonds ended mixed on Friday. The 10-year benchmark muni general obligation yield was unchanged from 2.24% on Thursday, while the yield on the 30-year GO rose one basis point to 3.00% from 2.99%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries turned weaker after the release of the December jobs report. U.S. non-farm payrolls rose 156,000 in December, while the unemployment rate rose to 4.7% from 4.6% in the previous month, the Labor Department reported. The jobs gain was less than expected, but the unemployment rate came in as forecast. Economists polled by IFR Markets had predicted a gain of 175,000 new jobs last month and a rise in the unemployment rate to 4.7%. For all of 2016, job gains averaged 180,000 a month, down from the 229,000 in 2015.
The yield on the two-year Treasury rose to 1.21% on Friday from 1.17% on Thursday, while the 10-year Treasury yield gained to 2.42% from 2.37%, and the yield on the 30-year Treasury bond increased to 3.00% from 2.97%.
The 10-year muni to Treasury ratio was calculated at 92.6% on Friday compared with 94.7% on Thursday, while the 30-year muni to Treasury ratio stood at 99.8%, versus 101.0%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Jan. 6 were from New York and California,
In the GO bond sector, the New York City 4s of 2043 were traded 16 times. In the revenue bond sector, the Metropolitan Water District of Southern California 5s of 2037 were traded 26 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 19 times.
Week's Most Actively Quoted Issues
California and Ohio names were among the most actively quoted bonds in the week ended Jan. 6, according to Markit.
On the bid side, the California taxable 7.7s of 2030 were quoted by 49 unique dealers. On the ask side, the Bowling Green State University of Ohio taxable 6.73s of 2039 were quoted by 36 unique dealers. And among two-sided quotes, the California taxable 7.6s of 2040 were quoted by 23 unique dealers.
Lipper: Muni Bond Funds Report Outflows
Municipal bond funds again experienced outflows as investors continued to pull cash out of the market, according to Lipper data released late Thursday.
The weekly reporters saw $911.938 million of outflows in the week ended Jan. 4, after outflows of $1.637 billion in the previous week.
The four-week moving average remained in the red at negative $1.632 billion after being negative $1.957 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 outflows, losing $226.857 million in the latest week after shedding $583.675 million in the previous week. Intermediate-term funds had outflows of $636.984 million on top of outflows of $703.236 million in the prior week.
National funds had outflows of $613.824 million after outflows of $1.196 billion in the previous week. High-yield muni funds reported outflows of $244.713 million in the latest reporting week, after outflows of $351.680 million the previous week.
Exchange traded funds saw inflows of $607.714 million, after inflows of $151.304 million in the previous week.
