Municipal bond deals start to price as stock volatility lends tentative tone

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Equity volatility is overshadowing activity in the fixed-income markets, including municipals, according to one muni professional.

“The fixed-income market is incredibly quiet, relative to the equity market's volatility. That includes corporate — investment-grade and high-yield — government and municipal debt,” said David Tawil, president of Mahlon Capital.

Others said supply challenges are still present but there could be improvement ahead.

“With large taxable issues, including California, topping this week's primary calendar, tax-free supply remains muted as it has for most of 2018, but this may be changing,” said Alan Schankel, managing director at Janney Capital Markets. “The 30-day visible supply is growing, reaching $13.7 billion this week, the highest since December's deluge of new issues rushed to market to beat potential year-end limitations on municipal issuance,” he said.

“We see limited upward pressure on longer maturity yields, although the tax-free yield curve continues to flatten, as the short end reacts to past and expected Fed rate hikes.”

Secondary market
At mid-session, municipal bonds were mixed, according to a read of the MBIS benchmark scale.

Benchmark muni yields fell less than a basis point in one- and two-years while yields from three- to 30-years rose less than a basis point.

Yields calculated on MBIS’ AAA scale fell less than a basis point from one- to six-years and in 12-years, while yields on maturities from seven- to 11-years and 13- to 30-years rose less than one basis point.

Treasury bonds were slightly weaker as the Dow Jones Industrial Average and S&P 500 Index both rose 1% while the Nasdaq Composite Index gained 1.5%.

Primary market
JPMorgan Securities is set to price California’s $2.2 billion of taxable general obligation bonds. The Golden State GOs are rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.

Goldman Sachs priced the District of Columbia Water and Sewer Authority’s $300 million of Series 2018A senior lien revenue green bonds on Tuesday. The deal is rated Aa1 by Moody’s and AAA by S&P.

Citigroup priced the Phoenix Union High School District No. 210, Ariz.’s $148.2 million of Series 2018 school improvement bonds, projects of 2011 and 2017. The deal is rated Aa2 by Moody’s, AA by S&P and AAA by Fitch.

In the competitive arena on Tuesday, Memphis, Tenn., sold $314.6 million of Series 2018 general obligation improvement bonds.

Bank of America Merrill Lynch won the bonds with a true interest cost of 3.5638%. The deal is rated Aa2 by Moody’s and AA by S&P.

Since 2008, Memphis has sold about $2.7 billion of bonds, with the most issuance in that period occurring in 2010, when it offered $870 million of securities. It sold the least amount of bonds during that time in 2013, when it issued $21.4 million.
Also Tuesday, the Virginia Public Buildings Authority sold $179.91 million of public facilities revenue bonds in two sales.

Jefferies won the $162.24 million of Series 2018A tax-exempts with a TIC of 2.7470%. Robert W. Baird won the $17.67 million of Series 2018B taxables with a TIC of 3.6274%. Both deals are rated AA-plus by Fitch.

Bank of America Merrill Lynch is expected to price the Montgomery County Higher Education and Health Authority, Pa.’s $485 million of revenue bonds, taxable revenue bonds and variable-rate bonds on Tuesday. The deal is rated A2 by Moody’s and A-plus by S&P.

Tuesday’s bond offerings

Click here for the D.C. Water deal

Click here for the Phoenix UHSD No. 210 deal

Click here for the Memphis sale

Bond Buyer 30-day visible supply at $12.09B
The Bond Buyer's 30-day visible supply calendar increased $1.22 billion to $12.09 billion on Tuesday. The total is comprised of $5.18 billion of competitive sales and $6.91 billion of negotiated deals.

Previous session's activity
The Municipal Securities Rulemaking Board reported 32,727 trades on Monday on volume of $10.63 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 15.152% of the market, the Empire State taking 12.081% and the Lone Star State taking 10.107%.

Treasury sells $45B 4-week bills
The Treasury Department Tuesday auctioned $45 billion of four-week bills at a 1.630% high yield, a price of 99.873222. The coupon equivalent was 1.655%. The bid-to-cover ratio was 3.08.

Tenders at the high rate were allotted 25.14%. The median rate was 1.600%. The low rate was 1.570%.

Gary Siegel contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.

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Primary bond market Secondary bond market State of California State of New York State of Texas City of Memphis, TN Virginia Public Building Authority