Munis end stronger as stocks slump

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Municipal bonds were stronger on Monday as Christmas week kicked off with more volatility in the equity market. The Dow Jones Industrial Average and S&P 500 Index suffered their worst Christmas Eve losses since 1933, according to data cited by MarketWatch. Stock indexes overall fell to their lowest levels since April 2017 and pushed up Treasury and muni bonds.

Financial markets closed down early ahead of the holiday. There are no muni bonds slated for sale this week, with the new issue calendar as bare as Old Mother Hubbard’s cupboard.

Secondary market
Municipal bonds were stronger on Monday, according to a read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points in the one- to 30-year maturities.

High-grade munis were also stronger, with yields calculated on MBIS' AAA scale dropping as much as two basis points across the curve.

Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the 30-year muni maturity remaining unchanged.

Treasury bonds were stronger amid continuing stock market weakness. The Treasury 30-year was yielding 3.004%, the 10-year yield stood at 2.755%, the five-year was at 2.591%, the two-year was at 2.595% while the Treasury three-month bill stood at 2.386%.

“Over the weekend, President Trump was talking about firing Federal Reserve Chairman Jerome Powell according to reports,” ICE Data Services said in a Monday market comment. “The Fed raised rates two weeks ago bringing the Fed Funds rate to just below neutral. As a result, equity markets have dropped into correction territory, ending the longest bull run in history for the S&P 500.”

On Sunday, Treasury Secretary Mnuchin called the CEOs of the nation’s six largest banks, who told him that they have ample liquidity available for lending to consumer, business markets, and all other market operations. On Monday, he was holding a call with the President’s Working Group on financial markets, which includes the the Federal Reserve Board of Governors, the Securities and Exchange Commission and the Commodities Futures Trading Commission to discuss efforts to assure normal market operations.

“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in a press release. “With the government shutdown, Treasury will have critical employees to maintain its core operations at Fiscal Services, IRS, and other critical functions within the department.”

On Monday, the 10-year muni-to-Treasury ratio was calculated at 83.8% while the 30-year muni-to-Treasury ratio stood at 100.9%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 37,553 trades on Friday on volume of $9.59 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 17.302% of the market, the Empire State taking 13.382% and the Lone Star State taking 9.398%.

Last week's actively traded issues
Revenue bonds comprised 56.83% of total new issuance in the week ended Dec. 21, according to Markit with general obligation bonds making up 38.19% and taxable bonds accounting for 4.98%.
Some of the most actively traded munis by type in the week were from New York, Texas and Puerto Rico issuers, according to Markit.

In the GO bond sector, the Suffolk County, N.Y., 5s of 2019 traded 99 times. In the revenue bond sector, the Texas 4s of 2019 traded 41 times. And in the taxable bond sector, the Puerto Rico Government Development Bank Recovery Authority 7.5s of 2040 traded 14 times.

Last week's actively quoted issues
Puerto Rico, New York and California names were among the most actively quoted bonds in the week ended Dec. 21, according to Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5.25s of 2041 were quoted by 68 unique dealers. On the ask side, the New York City taxable 5.206s of 2031 were quoted by 85 dealers. And among two-sided quotes, the California taxable 7.5s of 2034 were quoted by 25 dealers.

Primary market
While this week’s calendar is empty, market participants will see Massachusetts issue almost $1 billion of general obligation and GO refunding bonds. Bank of America Merrill Lynch will price the deal during the week of Jan. 7, 2019.

Bond Buyer 30-day visible supply at $3.81B
The Bond Buyer's 30-day visible supply calendar increased $1.35 billion to $3.81 billion for Monday. The total is comprised of $1.45 billion of competitive sales and $2.36 billion of negotiated deals.

BlackRock’s market overview
“Municipal bonds posted strong returns in November as interest rates trended lower on the back of a unified, dovish message from the Federal Reserve, suggesting a return to data-driven (versus forecast-driven) monetary policy as economic growth appears to be slowing,” according to Peter Hayes, head of BlackRock’s municipal bonds group.

“Supply-and-demand dynamics appear poised to improve, in our opinion. Forward supply expectations remain manageable, while recent strong performance should help elicit a return of demand,” Hayes wrote in a market comment released last Friday. “However, tax-loss selling may create pressure as investors look to offset their equity gains between now and year end.”

Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed on Monday, as the $39 billion of three-months incurred a 2.415% high rate, up from 2.375% the prior week, and the $36 billion of six-months incurred a 2.480% high rate, down from 2.485% the week before. Coupon equivalents were 2.464% and 2.546%, respectively. The price for the 91s was 99.389542 and that for the 182s was 98.746222.

The median bid on the 91s was 2.380%. The low bid was 2.320%. Tenders at the high rate were allotted 55.30%. The bid-to-cover ratio was 2.94.

The median bid for the 182s was 2.460%. The low bid was 2.440%. Tenders at the high rate were allotted 6.55%. The bid-to-cover ratio was 3.04.

Treasury sells 2-year notes
The Treasury Department Monday auctioned $40 billion of two-year notes with a 2 1/2% coupon at a 2.619% yield, a price of 99.769592. The bid-to-cover ratio was 2.31.

Tenders at the high yield were allotted 12.56%. The median yield was 2.582%. The low yield was 2.400%.

Treasury to sell $40B 4-week bills
The Treasury Department said on Monday that it will sell $40 billion of four-week discount bills Thursday. There are currently $30.000 billion of four-week bills outstanding.

Treasury also said it will sell $30 billion of eight-week bills Thursday.

Gary E. 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 Ziad Saba at 212-803-6079 for more information.

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Secondary bond market State of California State of New York State of Texas City of New York, NY Commonwealth of Massachusetts Puerto Rico Sales Tax Financing Corp (COFINA) Suffolk County Government Development Bank for Puerto Rico