Prices of top-quality municipal bonds were stronger at mid-session, traders said, with yields on some maturities rising by as much as two basis points.
And bond traders will barely get a breather as they prepare for next week's hefty new-issue slate after a busy week that saw several large deals come to market.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Friday was up as much as one basis point from 2.31% on Thursday, while the yield on the 30-year GO was as much as two basis points higher from 3.27%, according to a read of Municipal Market Data's triple-A scale.
Treasury prices were mixed on Friday, with the yield on the two-year Treasury note unchanged from 0.66% on Thursday, while the 10-year yield fell to 2.35% from 2.36% and the 30-year yield declined to 3.08% from 3.12%.
The 10-year muni to Treasury ratio was calculated on Thursday at 98.2% versus 100.0% on Wednesday, while the 30-year muni to Treasury ratio stood at 105.0% compared to 107.1%, according to MMD.
Primary Market
Total volume for next week is estimated at $9.17 billion, according to Ipreo. This is up from a revised total of $7.81 billion this week, according to Thomson Reuters.
There are $7.64 billion of municipal bond sales scheduled for negotiated sale next week versus a revised $6.10 billion sold this week. Bonds scheduled for competitive sale total $1.53 billion compared to $1.71 billion offered this week.
Next week's calendar is topped by one of the market's most active issuers -- the New York State Dormitory Authority.
Morgan Stanley is slated to price DASNY's $1.17 billion of Series 2015A New York State sales tax revenue bonds. The issue is rated triple-A by Standard & Poor's and AA-plus by Fitch Ratings.
Morgan Stanley is also set to price the Port of Seattle, Wash.'s $592 million of intermediate lien revenue bonds, consisting of Series 2015A non-AMT, Series 2015B non-AMT and Series C AMT bonds. The sale is expected to pr9ce on Tuesday. The issue is rated A1 by Moody's Investors Service and A-plus by S&P and Fitch.
Bank of America Merrill Lynch is expected to price the city and county of Honolulu, Hawaii's $593 million of wastewater system revenue bonds, which consist of Series 2015A junior refunding bonds and Series A and B senior refunding bonds. A one-day retail order period will be held on Tuesday ahead of the institutional pricing on Wednesday. The senior bonds are rated Aa2 by Moody's and AA-minus by S&P while the junior bonds are rated Aa3 by Moody's and AA-minus by S&P.
Siebert Brandford Shank is set to price the New York Metropolitan Transportation Authority's $500 million of Series 2015C transportation revenue refunding bonds, consisting of $400 million Subseries 2015C-1 fixed-rates, $50 million of Subseries 2015C-2 mandatory tender bonds and $50 million of Subseries 2015C-3 Libor floating-rate tender notes. A one-day retail order period will be held on Wednesday ahead of the institutional pricing on Thursday.
BAML is also slated to price the Hillsborough County Aviation Authority, Fla.'s $334 million of revenue bonds for the Tampa International Airport, consisting of Series A AMT subordinated revenue bonds and Series B non-AMT bonds. The deal, slated for sale on Wednesday, is rated A1 by Moody's, A-plus by S&P and A by Fitch.
BAML is also set to price the Harris County Cultural Education Facilities Finance Corp., Texas' $300 million of Series 2015 revenue bonds for the Houston Methodist Hospital on Wednesday. The bonds are rated AA by S&P.
In the competitive arena, Nashville, Tenn., is scheduled to sell $348 million of Series 2015C general obligation improvement bonds on Tuesday. The deal is rated Aa2 by Moody's and AA by S&P.
Nashville last sold comparable bonds competitively on March 4, 2008, when Merrill Lynch won $308 million of Series 2008 GOs with a true interest cost of 4.76%.
Also on Tuesday, the Miami-Dade County School Board, Fla., will sell $200 million of Series 2015 GO school bonds. The issue is rated Aa2 by Moody's and A-plus by S&P.
The district last sold comparable bonds competitively on July 10, 2013, when JPMorgan won $109 million of Series 2013 GO school bonds with a TIC of 4.54%.
Municipal Bond Funds See $29.3M Cash Outflow
For the 11th straight week, municipal bond funds reported cash outflows. The weekly reporting funds saw $29.255 million of outflows in the week ended July 15, after experiencing outflows of $305.707 million in the previous week, according to the latest Lipper data. This brought to 14 out of 29 weeks this year the funds have seen cash withdrawals.
The four-week moving average remained negative at $409.882 million after being in the red at $507.779 million in the previous week. The moving average has now been negative for eight weeks in a row. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds, however, experienced inflows, gaining $34.223 million in the latest week, after seeing outflows of $147.939 million in the previous week. It was the first week of cash flowing into the long-term funds since April 29.
Intermediate-term funds again recorded inflows, of $20.109 million after seeing inflows of $53.613 million in the prior week.
High-yield muni funds saw inflows of $14.513 million in the latest reporting week, after seeing an outflow of $122.823 million the previous week. And exchange traded funds saw inflows of $45.314 million, after experiencing outflows of $27.250 million in the previous week.
Analysts have suggested technical reasons as well as headline risk surrounding credits such as Puerto Rico have contributed to the continuing cash redemptions.
Municipal bond funds have been impacted somewhat by the deteriorating financial situation in Puerto Rico, according to Van Eck Global's senior municipal strategist James Colby.
"Mainstream news articles showed how widely Puerto Rico credits were held -- and I emphasize the word 'were' because many investors told their advisors 'get me out' and some professionals said 'these securities don't fit with our investment criteria anymore.'"
Investors continue to look at the municipal bond market as a unique entity, he said, one that is supposed to deliver a constant income stream while providing high-credit quality. And when that doesn't always happen, "It plays into some of the redemption flows."
Some felt it was just better to exit the muni market now and then revisit it at a later date when things had calmed down, he said, adding that while investors are quick to exit, they are slow to come back.
Is there a silver lining?
"As I look at yields rising, and performance at or near zero," Colby said, "I am optimistic at the possibility of having a pretty strong finish for municipal bond performance in 2015."
The Week's Most Actively Quoted Issues
Puerto Rico and New York were some of the most actively quoted names in the week ended July 17, according to data released by Markit.
On the bid side, the Puerto Rico commonwealth GO 5 1/8s of 2037 were quoted by 10 unique dealers. On the ask side, New York Triborough Bridge and Tunnel Authority revenue bond 5s of 2020 were quoted by 21 dealers. And among two-sided quotes, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 12 dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues in the week ended July 17 were in Puerto Rico, Pennsylvania and Illinois.
In the revenue bond sector, the Lehigh County General Purpose Authority, Pa., 4 1/4s of 2045 were traded 75 times. In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 were traded 98 times. And in the taxable bond sector, the Chicago 7 3/4s of 2042 were traded 51 times, according to Markit.
