Prices of top-shelf municipal bonds closed higher on Friday, according to traders, as yields on some maturities fell by as much as three basis points.
In the primary, the tax-exempt market saw nearly $6.5 billion of new supply sell during the week, according to revised figures from Thomson Reuters. This was comprised of about $5 billion of negotiated sales and $1.5 billion of competitive sales.
And New York City was a big part of the week's new issue supply, with almost $2 billion of deals coming from the Big Apple alone.
Goldman, Sachs priced the New York City Transitional Finance Authority's $750 million of Series S-2 Fiscal 2015 building aid revenue bonds after holding a two-day retail order period. The BARBs were rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Also, the New York City Housing Development Corp. came to market as JPMorgan priced $564.57 million of fixed-rate multi-family housing revenue bonds called Sustainable Neighborhood bonds. Sustainable Neighborhood bonds are a new category of social investment bonds in America. "This transaction was very well received," Alan Jaffe, Executive Director at J.P. Morgan, said in an interview with The Bond Buyer.
"The importance of this transaction lies in several points," he said. "In addition to being the largest housing transaction in the municipal sector so far this year, it is a first for affordable housing in the United States in targeting socially beneficial projects via a specific bond designation, the Sustainable Neighborhood Bonds."
HDC President Gary Rodney told The Bond Buyer that "the financing will create and preserve safe, quality affordable housing that provides deeper levels of affordability, serves some of the most vulnerable New Yorkers, and fosters greater economic diversity and stronger neighborhoods."
Additionally, the New York Metropolitan Transportation Authority competitively sold $500 million of Series 2015A transportation revenue bond anticipation notes. Bank of America Merrill Lynch won $360 million of the BANs, Goldman, Sachs won $100 million and FTN Financial Capital Markets won $40 million. The notes were rated MIG1 by Moody's, SP1-plus by S&P and F1 by Fitch.
One deal that didn't come to market was Wayne County, Mich., which postponed its $187 million note deal by one week after County Executive Warren Evans asked the state to review a request for fiscal intervention to help dig the county out of a $52 million budget hole.
Wayne County had had planned a $186.9 million sale of delinquent tax anticipation notes on Thursday. The DTANs were being priced by Bank of America Merrill Lynch.
"The request for state review will necessitate a delay in the sale of the notes, which was to have taken place on June 18," Wayne County Deputy Treasurer Christa McLellan said in a statement. "It is now expected to be rescheduled to Wednesday or Thursday in order to give investors time to digest and react to the executive's announcement as well as understand the strengths and vitality of the delinquent tax program."
S&P had assigned an SP1 rating to the deal, citing a "strong capacity to pay principal and interest." The borrowing is one the county makes regularly to cover late property tax collections owed to its local units.
Public Financial Management was municipal advisor and Axe & Ecklund was note counsel. The county also hired Orrick, Herrington & Sutcliffe as special bankruptcy counsel. Bond documents and an online investor roadshow both contained discussions on bankruptcy in the sections on investor risks, marking the first time the county formally warned investors of the possibility of Chapter 9.
Secondary Market
Prices of top-quality municipal bonds finished higher on Friday. The yield on the 10-year benchmark muni general obligation fell three basis points to 2.27% from 2.30% on Thursday, while the yield on the 30-year GO dropped three basis points to 3.26% from 3.29%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were higher on Friday with the yield on the two-year Treasury note falling to 0.62% from 0.64% on Thursday, while the 10-year yield dropped to 2.27% from 2.35% and the 30-year yield decreased to 3.06% from 3.13%.
The 10-year muni to Treasury ratio was calculated on Friday at 101.3% versus 97.9% on Thursday, while the 30-year muni to Treasury ratio stood at 106.2% compared to 104.8%, according to MMD.
Municipal Bond Funds See Outflows for 7th Straight Week
For the seventh week in a row, municipal bond funds reported outflows, bringing to 10 out of 25 weeks this year the funds have suffered cash withdrawals.
The weekly reporting funds saw $420.844 million of outflows in the week ended June 17, after experiencing outflows of $411.755 million in the previous week, according to the latest Lipper data.
"We had a banner year in 2014 with flows being consistent and we started this year out positive, but of late we have seen out flows," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. "I think its general nervousness about where the Fed is heading but we don't see the outflows at present being that much of a negative."
The four-week moving average remained negative at $354.647 million after being in the red at $272.198 million in the previous week. The moving average has been negative for three 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 also experienced outflows, losing $197.404 million in the latest week, after seeing outflows of $264.597 million in the previous week. Intermediate-term funds recorded outflows of $15.216 million after seeing outflows of $48.402 million in the prior week.
High-yield muni funds saw an outflow of $161.877 million in the latest reporting week, after seeing an outflow of $241.843 million the previous week. Exchange traded funds saw inflows of $3.186 million, after experiencing outflows of $2.522 million in the previous week, according to Lipper.
Heckman said both technical and seasonal factors have been at work recently.
"Some of it is technical, as right around tax time and a little after, you have some seasonal outflows We aren't disturbed by the outflows, but if we see them last longer we might change our viewpoint."
Heckman added that he has been noticing that investors are looking for higher credit quality, as there is a bifurcation between ratings.
"When you are going in to sell bonds, you are paid by having quality versus not. And not enough is being said for that dynamic," he said. "There is market uneasiness with pension and credit problems, and now that these problems are back in the spotlight, buyers want to make sure they have good credits in their portfolios and they are going to need to pay up for that."
The Week's Most Actively Quoted Issues
Illinois and Puerto Rico issues were among the most actively quoted in the week ended June 19, according to data released by Markit.
On the bid side, the Illinois taxable 5.1s of 2033 were quoted by eight unique dealers. On the ask side, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 13 dealers. And among two-sided quotes, the Puerto Rico commonwealth GO 8s of 2035 were quoted by nine dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues in the week ended June 19 were in New York, Los Angeles and Puerto Rico names, according to Markit.
In the revenue bond sector, the New York City Transitional Finance Authority's BARB 4s of 2044 were traded 73 times. In the GO bond sector, the Puerto Rico commonwealth GO 8s of 2035 were traded 37 times. And in the taxable bond sector, the Los Angeles Unified School District's 5.981s of 2027 were traded 13 times, according to Markit.
