The first of the week's new issues came to market on Monday, as a competitive deal from a school district in Kansas got the action started ahead of some of the larger negotiated deals, which will be pricing on Wednesday.
Prices of top-rated munis were unchanged at the market close on Monday, traders said, with yields remaining steady from where they were on Friday.
Primary Market
Johnson County Unified School District No. 229, Kan., competitively sold two separate issues totaling roughly $162.4 million of general obligation and refunding bonds, Series' 2015 A and B.
The $92.2 million of Go school bonds, Series 2015-A was won by Raymond James with a true interest cost of 2.84%. The bonds were priced to yield from 0.26% with a 5% coupon in 2016 to 1.25% with a 5% coupon in 2019. The bonds were also priced to yield from 2.15% with a 5% coupon in 2023 to 3.41% with a 3.5% coupon in 2035.
The $70.25 million of GO refunding bonds, Series 2015-B was won by JP Morgan with a true interest cost of 2.10%. The bonds were priced to yield from 0.31% with a 2% coupon in 2016 to 2.64% with a 3% coupon in 2027.The deal is rated triple-A by Moody's Investors Service and AA-plus by Standard & Poor's.
Muni volume is estimated at $4.2 billion this week, according to Ipreo.
The state of Ohio will be competitively selling three issues totaling roughly $250.48 million of conservation projects general obligation and infrastructure improvement GOs and refunding bonds on Tuesday. The deal is rated triple-A by Moody's and AA-plus by S&P and Fitch Ratings.
All of the larger new negotiated deals will be priced on Wednesday this week and not by a coincidence either.
The Federal Open Market Committee will be having their Sept. meeting 16-17, where everyone is waiting on the announcement of interest rates.
"I can understand underwriters being careful of bringing deals and then having them get hung up if the Fed did do something that is disruptive to the bond market," said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management.
The Texas Transportation Commission plans the biggest deal on the calendar, a sale of $750 million of Series 2015A general obligation mobility fund refunding bonds. The advance refunding, expected to be priced by JPMorgan Securities on Wednesday, is rated triple-A by Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Among some other deals that will be pricing on Wednesday, Barclays Capital is slated to price the Illinois Finance Authority's $368 million of Series 2015A revenue bonds for OSF Healthcare.
Citi will be busy pricing three deals: the Los Angeles Department of Water and Power's $271 million of power system revenue bonds; Philadelphia's $225 million of GOs; and the Illinois' Metropolitan Pier and Exposition Authority's $222 million of bonds for the McCormick Place expansion project.
Secondary Market
The yield on the 10-year benchmark muni general obligation on Monday was steady from 2.23% on Friday, while the yield on the 30-year GO did not change from 3.20%, according to a final read of Municipal Market Data's triple-A scale.
Treasury prices were flat to slightly stronger on Monday, with the yield on the two-year Treasury note up to 0.73% from 0.71% on Friday, while the 10-year yield was flat from 2.18% and the 30-year yield unchanged from 2.95%.
The 10-year muni to Treasury ratio was calculated on Monday at 102.3% versus 102.2% on Friday, while the 30-year muni to Treasury ratio stood at 108.5% compared to 108.8%, according to MMD.
Prior Week's Actively Traded Issues by Sector
Revenue bonds comprised 57.78% of new issuance in the week ended Sept. 11, up from 56.92% in the previous week, according to Markit. General obligation bonds comprised 33.27% of total issuance, up from 35.08%, while taxable bonds made up 8.95%, up from 8.00%.
Puerto Rico and Connecticut were some of the most actively quoted names in the week.
On the bid side, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 12 unique dealers. On the ask side, the Connecticut Health and Educational Facilities Authority revenue 4 1/8s of 2041 were quoted by 19 dealers. And among two-sided quotes, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 13 dealers, Markit said.
Munis on the Move
Last week, interest rates on top-quality tax-exempt bonds moved higher "across most of the term structure as the S&P triple-A Municipal Yield Curve increased by one and five basis points at the three- and five-year marks, respectively," Leslie Varrelman, fixed-income product specialist at Wilmington Trust, wrote in the firm's latest market report. "Meanwhile, the 10-year point on the curve saw a five basis point rise and the 30-year climbed 8 basis points. The one-year maturity yield remained unchanged, ending the week at 0.26%."
Varrelman said the rise in muni yields "triggered a -0.192% total return for the S&P Municipal Bond Index for the holiday-shortened week, while the intermediate, short intermediate, and short indices printed -0.133%, -0.062%, and -0.005%, in that order."
For the month of August, however, municipal bonds fared relatively well, BlackRock said in its market update, as China concerns, worries over global growth, and a possible Federal Reserve rate hike all heightened market volatility.
"Municipals, while not completely immune, were able to outperform weaker U.S. Treasuries, thanks in part to positive seasonal factors (specifically, net-negative supply) and the defensive nature of the asset class in what ultimately was an environment of intense risk aversion," BlackRock said.
"The S&P Municipal Bond Index returned 0.26% in August and 0.97% year-to-date. Longer maturities led their shorter brethren, and high-yield managed to outpaced the broader market," BlackRock said. "Munis modestly outperformed Treasuries, with muni rates lower and Treasury rates higher. Muni-to-Treasury ratios remain attractive, at 105% for 30-year maturities."
While seasonal factors and the FOMC meeting causing investor uncertainty, BlackRock said that munis still represent a unique income proposition in a low-rate, high-tax world.
Turning to supply, issuance for the month was $6.2 billion as of Sept. 10, Bank of America Merrill Lynch said in its latest research report, up 3.4% from the same period last year. This brought year to date issuance to $295.8 billion, up 38.3% compared to the same time last year. Of the year to date total, 64.8% was refundings compared to 53.7% in the same time in the prior year.
BAML estimates total September issuance at $31 billion.
Through Sept. 10, the BofAML Muni Master Index returned 0.857% for the year-to-date and outperformed both the Treasury Master Index and the U.S. Corporate IG Master Index, which had returns of 0.812% and -0.432%, respectively.
The best performance in munis so far this year has been in the 22-year and long maturities and in the BBB sector.
