Prices of top-rated municipal bonds finished stronger on Monday, traders said, with yields on some maturities falling by as much as two basis points.
The municipal bond market was gearing up after the long holiday weekend to take on the week's almost $7 billion of new supply. The Municipal Securities Rulemaking Board was closed on Friday; Municipal Market Data was also closed and no scale readings were set.
Meanwhile, a new survey showed that credit analysts have named public pensions as the most important issue facing the market today.
Secondary Market
Prices of top-quality munis closed higher. The yield on the 10-year benchmark muni general obligation fell two basis points to 1.91% from 1.93% on Thursday, while the yield on 30-year GO was down one basis point to 2.79% from 2.80%, according to the final read of MMD's triple-A scale. Trading was light to moderate on Monday, according to Interactive Data.
Treasury prices were mixed on Monday. The yield on the two-year Treasury note fell to 0.50% from 0.53% on Thursday, while the 10-year yield was flat at 1.90% and the 30-year yield rose to 2.57% from 2.52%.
The 10-year muni to Treasury ratio was calculated at 98.8% on Monday versus 101.4% on Thursday, while the 30-year muni to Treasury ratio stood at 108.0% compared to 110.9%.
Credit Analysts Say Pensions Most Important Issue: Janney Survey
Credit analysts picked public pensions as the most important issue facing the municipal bond market today, according to respondents in Janney Capital Markets first annual "Municipal Bond Market Credit Analyst Survey."
Of the municipal credit analysts polled, 86% chose pensions, including funding levels and pension obligation bonds, in their top five picks, according to the survey released on Monday.
Puerto Rico (50%), infrastructure (44%), Chapter 9 municipal bankruptcy proliferation (38%) and disclosure (35%) rounded out the top five choices made by the muni credit analysts.
Additionally, 61% of the analysts surveyed said state and local government credit quality has recovered. However, 22% said credit quality hasn't recovered, 9% said it has not yet recovered, and 8% were undecided.
Janney polled 162 municipal bond credit analysts; 63% were buy-side analysts, 14% were sell-side analysts, 11% were analysts at bond insurers and 12% identified themselves as "other."
Top Traded Munis by Sector
Muni bonds from issuers in California and New York were the most actively traded bonds by market sector in the week ended April 3, according to data released by Markit.
Broken down by market sector, revenue bonds comprised 54.53% of new issuance, down from 54.62% in the prior week. General obligation bonds comprised 37.65% of total issuance, up from 37.46%, while taxable bonds made up 7.82%, down from 7.92%.
In the revenue bond sector, California's Golden State Tobacco Securitization Corp. 5s of 2045 were traded 109 times. In the GO bond sector, California 5s of 2026 were traded 21 times. And in the taxable bond sector, the New York City Transitional Finance Authority 5.508s of 2037 were traded 20 times, according to Markit.
Primary Market
Traders are now looking at the $6.96 billion of new supply set to come to market this week. An estimated $5.01 billion of negotiated deals are slated to be priced and about $1.95 billion of competitive offerings are scheduled for sale.
The New York State Dormitory Authority is expected to come to market with three separate negotiated deals totaling more than $1 billion. The issues consist of $690.49 million of Series 2015A revenue bonds and $265.97 million of Series 2015B taxable revenue bonds for New York University to be priced by Morgan Stanley on Thursday; and $125 million of revenue bonds for The New School to be priced by Goldman, Sachs on Tuesday. The NYU bonds are rated Aa2 by Moody's and AA-minus by S&P and The New School bonds are rated A3 by Moody's and A-minus by S&P.
In the competitive arena, North Carolina will sell $225 million of general obligation bonds on Wednesday. The GOs are rated triple-A ratings by Moody's, S&P and Fitch Ratings.
Tax-Exempt Bond Funds See Outflow
For the first time in 12 weeks, municipal bond funds reported a cash outflow as retail investors cashed out ahead of the April 15 tax filing date.
Municipal bond funds which report weekly posted $300.580 million of outflows in the week ended April 1, after posting inflows of $581.664 million in the week ended March 25, according to the latest Lipper data.
Up until the latest reporting period, muni bond funds had reported inflows in each week of 2015, according to Lipper data. Inflows for the year total about $5.21 billion. The last outflow was on Dec. 31, 2014, when the funds lost $9.4 million of cash.
