Good demand greets new muni issues

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Good investor demand met the the new deals that priced in the primary on Wednesday even as munis remained mostly weaker.

Primary market
Wells Fargo Securities priced and repriced and restructured the New Jersey Transportation Trust Fund Authority’s $750 million of Series 2019AA transportation program bonds.

Buyer interest prompted the deal to be increased in size from the original $500 million issue.

"Demand was good on the long end, allowing them to upsize," said one source who participated in the deal.

The deal is rated Baa1 by Moody’s Investors Service, BBB-plus by S&P Global Ratings, and A-minus by Fitch Ratings and Kroll Bond Rating Agency. All four rating agencies assign stable outlooks to the credit.

Since 2009, the authority has sold about $16 billion of bonds with the most issuance occurring in 2018 when it issued $2.76 billion. It did not come to market in 2017.
Goldman Sachs priced the Trinity Health Credit Group’s $348.22 million composite issue.

Citigroup priced the Indiana Finance Authority’s $212.23 million of Series 2019A state revolving fund program green bonds.

The deal is rated triple-A by Moody’s, S&P and Fitch; all three agencies assign stable outlooks to the credit.

In the competitive sector, Citi won the Florida Department of Transportation’s $224.17 million of Series 2019A turnpike revenue refunding bonds.

The deal is rated Aa2 by Moody’s and AA by S&P and Fitch.

On Thursday, JPMorgan Securities is expected to price the San Francisco Airport Commission’s $1.78 billion of tax-exempt and taxable revenue and revenue refunding bonds.

The deal, which consists of bonds subject to the alternative minimum tax and non-AMT bonds, is rated A1 by Moody’s and A-plus by S&P and Fitch.

Bond sales

New Jersey
Click here for the Transportation repricing

Click here for the Transportation deal

Michigan
Click here for the Trinity composite deal

Indiana
Click here for the Finance Authority deal

Florida
Click here for the DOT deal

NYC MWFA announces $450M sale
The New York City Municipal Water Finance Authority said Wednesday that it plans to sell $450 million of tax-exempt fixed-rate second general resolution revenue bonds on Wednesday, Jan. 16 after a one-day retail order period.

Proceeds will be used to fund capital projects.

The bonds will be sold via negotiated sale through the authority’s underwriting syndicate, led by book-running lead manager Barclays, with Raymond James and Siebert Cisneros Shank & Co. serving as co-senior managers.

Bond Buyer 30-day visible supply at $9.58B
The Bond Buyer's 30-day visible supply calendar decreased $1.58 billion to $9.58 billion for Wednesday. The total is comprised of $3.03 billion of competitive sales and $6.55 billion of negotiated deals.

Secondary market
Municipal bonds were mostly weaker on Wednesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as three basis points in the one- to six-year maturities, rose as much as one basis point in the eight- to 30-year maturities and were unchanged in the seven-year maturity.

High-grade munis were also mostly weaker, with yields calculated on MBIS' AAA scale falling as much as one basis point in the one- to 10-year maturities and rising as much as one basis point in the 11- to 30-year maturities.

Municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising one basis point while the yield on the 30-year muni maturity gained three basis points.

Treasury bonds were mixed amid stock market volatility. The Treasury 30-year was yielding 3.022%, the 10-year yield stood at 2.728%, the five-year was at 2.554%, the two-year was at 2.549% while the Treasury three-month bill stood at 2.443%.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 81.8% while the 30-year muni-to-Treasury ratio stood at 101.0%, 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 45,200 trades on Tuesday on volume of $10.34 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 17.232% of the market, the Empire State taking 10.158% and the Lone Star State taking 9.001%.

Value and volume predictions
As January gets underway, there are pockets of value and opportunity ahead, yet also some challenges facing municipal investors as net supply remains negative, at least one municipal analyst said this week.

“Munis in most credit sectors and points on the curve appear fairly valued and in-line with one to three-year averages based on most traditional metrics, including yield, ratios, and credit spreads,” Peter Block, managing director of credit strategy at Ramirez & Co., wrote in a weekly municipal report on Monday.

“Provided interest rates remain somewhat range-bound in 2019 and muni net supply remains negative as we expect, the [Municipal Market Data] curve’s steepness through 20 years -- the 2s and 20s at plus 106 basis points -- appears to support our investment thesis of outperformance in intermediate and longer durations,” Block wrote.

As a result, Block said he favors a 70/30 barbell structure, with 70% in one- to six-year maturities, and 30% in 19- to 21-year maturities with effective duration of 7.5 years.

He said that strategy captures 95% of the MMD yield curve and spread for longer durations, while limiting volatility through use of shorter duration risk, he wrote. He prefers maintaining higher than average credit quality of double-A minus or higher rated general obligation names and single A or better revenue names.

Overall, supply concerns are overshadowing the market, even though gross supply is expected to increase. Ramirez projects gross supply in 2019 to be $342 billion, up 8% year over year or a net absolute increase of $25 billion, according to Block.

“Our projected increase in gross supply in 2019 is driven by a slight increase in new money of $250 billion,” which translates into an additional 5% year over year, he noted.

A bigger bump in refunding volume is also expected to the tune of roughly $92 billion, or 13% year over year.

However, the uptick may not do much to boost the overall volume.

“Even though we expect gross supply to increase in 2019 the municipal market continues to contract on an absolute basis — albeit very slowly,” at 1% annually, Block wrote.

Net supply in 2018 was down $60 billion and the firm expects 2019 to experience net supply of another negative $30 billion, consisting of new money of $250 billion against maturities of negative $280 billion, or about $600 milion weekly, he predicted.

The year has already debuted with $8.7 billion of new issue supply so far, including $6.4 billion negotiated offerings and about $2.3 billion of competitive transactions, according to Block.

Block said there is typically a timing lag of new money supply versus actual maturities, and/or refunding supply versus actual calls during any given month. He said this results in a more acute supply-demand deficit on a weekly basis.

“This temporary supply deficit is captured by the weekly 30-day net supply estimate, which typically captures only 30% to 50% of actual gross supply, but accurately illustrates actual maturities and calls occurring over the next 30 days,” he said.

The weekly 30-day net supply deficit in 2018 averaged negative $14.5 billion, according to Block, who said “we expect the weekly 30-day supply deficit to remain consistent with that trend in 2019, thereby maintaining price support for the market generally on a weekly basis.”

Block doesn’t expect any demand effect versus prior years when it comes to this year’s January effect as over the next 30 days, net municipal market supply is a relatively small at negative $2.48 billion.

He said $12.35 billion of new issues will be arriving against $14.8 billion of redemptions that consist of $8.50 billion of maturing bonds and $6.3 billion of announcement calls.

“If we include 50% of the expected $14 billion of January coupon -- $7 billion -- and actual gross supply number of 2x the 30-day gross supply estimate at $24.7 billion, the market will end January with only $21.8 billion of demand against $24.7 billion of supply, or slightly negative net supply of $3 billion,” he said.

Treasury sells $24B reopened 10-year notes
The Treasury Department auctioned $24 billion of 9-year 10-month notes with a 3 1/8% coupon at a 2.728% high yield, a price of 103.3988245. The bid-to-cover ratio was 2.51.

Tenders at the high yield were allotted 81.02%. All competitive tenders at lower yields were accepted in full. The median yield was 2.690%. The low yield was 2.288%.

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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Primary bond market Secondary bond market New Jersey Transportation Trust Fund Authority Florida Department of Transportation Florida Department of Transportation Trinity Health Credit Group Indiana Finance Authority State of California San Francisco Airport Commission State of New York City of New York, NY New York City Municipal Water Finance Authority State of Texas
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