Prices of top-shelf municipal bonds firmed Monday, as traders kept one eye on the week's new issue slate and another on the direction of muni yields.
Secondary Market
The yield on the 10-year benchmark muni general obligation ended down one basis point to 2.35% from 2.36% on Friday, while the yield on the 30-year GO was off one basis point to 3.31% from 3.32%, according to the final read of Municipal Market Data's triple-A scale. Muni trading was light in the secondary, according to Interactive Data.
Treasury prices were higher on Monday with the yield on the two-year Treasury note falling to 0.68% from 0.72% on Friday, while the 10-year yield decreased to 2.38% from 2.40% and the 30-year yield declined to 3.10% from 3.11%.
The 10-year muni to Treasury ratio was calculated on Monday at 98.8% versus 101.8% on Friday, while the 30-year muni to Treasury ratio stood at 106.7% compared to 106.8%, according to MMD.
Rates Rise, Refundings Recede
"Higher rates finally quelled the surge in refundings, although we still believe that we will hit our total issuance target of $400 billion for the year," according to a new Bank of America Merrill Lynch Global Research report. "Retail has viewed the backup in rates as a buying opportunity and Muni-to-Treasury ratios have fallen dramatically."
BAML said it expects the muni curve will continue to flatten and that muni-to-Treasury ratios will decline in June and July to around 95% and 100% for the 10-year and 30-year, respectively.
As of June 4, issuance for the month-to-date was $5.8 billion, up 22.3% from the same period last year. Year-to-date issuance was up 48.2%, to $186.5 billion, BAML said. Of the total issuance so far this year, 68.6% has been related to refundings, compared with 50.8% in the same period in 2014.
The BAML Muni Master Index has a total return of negative 0.184% for the year and has underperformed both the Treasury Master Index and the U.S. Corporate IG Master Index, which had total returns of negative 0.098% and negative 0.024%, respectively.
"The best performance in munis for the year-to-date has been in the one- to three-year maturities and in the high-yield sector," the report said.
Primary Market
About $7.3 billion of new supply is on tap this week, including $3.1 billion of negotiated deals and $4.2 billion of competitive sales.
Leading the competitive calendar are five deals from the state of Georgia totaling around $1.3 billion, set for sale on Tuesday.
The offerings consist of $275.32 million of Series 2015A general obligation bonds, Tranche 1; $288.03 million of Series 2015A GOs, Tranche 2; $265.1 million of Series 2015B taxable GOs, Tranche 1; and $279.15 million of Series 2015C GO refunding bonds; and $182.73 million of Series 2015B taxable GOs, Tranche 2.
Moody's Investors Service, Standard & Poor's and Fitch Ratings all affirmed their triple-A ratings ahead of the deal. Public Resources Advisory Group is the state's financial advisor. Holland & Knight is bond counsel and Kutak Rock is disclosure counsel.
The last time the Peach State sold comparable bonds in the competitive market was on June 17, 2014, when Wells Fargo Securities won $329.25 million of Series 2014A GOs, Tranche 1, with a TIC of 1.63%.
The city of Atlanta is scheduled to competitively offer $252 million of Series 2015 GO public improvement bonds on Wednesday. The bonds are rated Aa2 by Moody's, AA by S&P and AA-plus by Fitch.
First Southwest and Grant & Associates are co-financial advisors for Atlanta's offering. Hunton & Williams and the Haley Law Firm are co-bond counsel and Greenberg Traurig and Riddle & Schwartz are co-disclosure counsel.
Atlanta last sold comparable bonds competitively on March 5, 2007, when Wachovia Bank bought $8 million of Series 2007A various purpose GOS with a TIC of 3.98%.
In the negotiated sector on Wednesday, RBC Capital Markets is slated to price Miami-Dade County, Fla.'s $534.18 million deal consisting of Series 2015A aviation revenue and refunding bonds, subject to the alternative minimum tax, and Series 2015B non-AMT aviation revenue refunding bonds. The deal is rated A by S&P and Fitch and AA-minus by Kroll Bond Rating Agency.
RBC is also expected to price the Cleveland Municipal School District, Ohio's $200 million of unlimited tax Series 2015 tax-exempt and Series 2015B taxable general obligation bonds on Wednesday. The deal is backed by the Qualified School Construction Bond Program, Direct Payment, and rated Aa2 by Moody's and AA by S&P and Fitch.
And Citi is slated to price the Erie County Industrial Development Agency, N.Y.'s $240.18 million of Series 2015A school facility refunding revenue bonds for the Buffalo City School District on Wednesday.
In a competitive deal, the Dormitory Authority of the State of New York is plans to auction $1.2 billion on Thursday in separate tranches.
The DASNY sale will consist of $393.32 million of Series 2015B tax-exempt Group B state personal income tax revenue bonds; $415.87 million of Series 2015B tax-exempt Group C state PIT revenue bonds; $241.36 million of Series 2015B tax-exempt Group A state PIT revenue bonds; $97.62 million of Series 2015D taxable state PIT revenue bonds; and $29.92 million of Series 2015C tax-exempt state PIT revenue bonds.
"This is the first PIT sale of the fiscal year," said a DASNY spokesman. "We expect to see aggressive bids with favorable rates which will result in a positive outcome for New York State."
DASNY returns to the market a week after Citi priced a $504 million North Shore Long Island Jewish Health System bond offering.
"That sale was for a private client," the spokesman said. "The state has a goal of issuing 50% of its transactions on a competitive basis."
Prior Week's Most Actively Traded Issues
New York, Pennsylvania and California bonds were among the most actively traded issues in the week ended June 5, according to Markit.
Revenue bonds comprised 54.87% of new issuance, down from 55.34% in the previous week. General obligation bonds comprised 37.36% of total issuance, up from 37.28%, while taxable bonds made up 7.77%, up from 7.38%.
In the revenue bond sector, the Montgomery County Industrial Development Authority, Pa., health system 5 1/4s of 2045 were traded 77 times. In the GO bond sector, the New York City 3 1/2s of 2033 were traded 82 times. And in the taxable bond sector, the California 7.55s of 2039 were traded 20 times, according to Markit.
