Municipal bonds were stronger Wednesday as bond deals from New York and California were coming to market.
As trading activity continued on the light side Wednesday morning, a Pennsylvania trader said his firm was stocking inventory with high-quality bonds on the short end of the yield curve in anticipation for July 1 redemptions and post-holiday sales.
“From a trading standpoint, we’re bidding a lot, but there’s not a lot of trading,” he lamented Wednesday morning.
He said the municipal market opened similar to Tuesday — with Municipal Market Data bumping the benchmark scale zero to one basis point 20-years and beyond.
“There’s not a lot of activity,” he explained. “Our new issue business is very quiet and the secondary is also quiet.”
“There’s a lot of bid-wanteds, but not a lot of buying,” he added, noting the lackluster activity was odd for a Wednesday. “Tuesdays and Wednesday are usually active,” he said, expecting the holiday lull to kick in closer to late Thursday and early Friday.
“It seems like you can always blame it on something; the holiday, the summer, a number coming out,” the trader said. “There are a lot of excuses for activity being light, but we’re stocking up our inventory and we’re ready,” he continued, anticipating increased demand and activity following the first week of July.
Primary market
Raymond James & Associates priced the Dormitory Authority of the State of New York’s $343.08 million of Series 2018-1 municipal health facilities improvement program lease revenue bonds, New York City issue for institutions after holding a one-day retail order period.
The deal is rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings.
Since 2008, DASNY has sold about $64 billion of debt, with the most issuance occurring in 2015 when it sold $9.09 billion. It sold the least amount in 2013 when it issued $3.02 billion.
Los Angeles is selling $321.81 million of general obligation bonds this afternoon.
The deals consist of $276.24 million of Series 2018A taxable social bonds; $34.995 million of tax-exempt Series 2018B GO refunding bonds; and $10.57 million of taxable Series 2018C GO refunding bonds.
Financial advisors are Public Resources Advisory Group and Omnicap Group; bond counsel is Nixon Peabody. The bonds are rated Aa2 by Moody’s and AA by S&P and Kroll Bond Rating Agency.
Bond sales
New York:
Bond Buyer 30-day visible supply at $4.51B
The Bond Buyer's 30-day visible supply calendar decreased $2.10 billion to $4.51 billion on Wednesday. The total is comprised of $1.82 billion of competitive sales and $2.70 billion of negotiated deals.
S&P affirms BAM, Assured ratings
S&P Global Ratings said it has affirmed Build America Mutual's AA rating and stable outlook.
S&P said the action reflects BAM’s “strong market acceptance in the U.S. municipal sector, prudent underwriting discipline, and proven year-over-year growth in terms of par insured, premiums written, and risk-based pricing.”
S&P added the stable outlook reflects its view that BAM’s “competitive position will remain strong while its RAP ratio remains acceptable. As interest rates rise — potentially leading to credit spreads widening — we expect the market demand for bond insurance to increase.”
Separately, Assured Guaranty Ltd. announced that S&P affirmed the AA financial strength ratings on Assured Guaranty Municipal Corp., Municipal Assurance Corp. and Assured Guaranty Corp. The outlooks on these entities are stable.
S&P cited Assured Guaranty’s “very strong capital adequacy” along with a “proven track record of credit discipline and market leadership in terms of par insured and premiums written” and a “diverse underwriting strategy.”
S&P added that its “capital position could absorb losses on its entire exposure to issuers in Puerto Rico of roughly $3 billion and … there would be no change in Assured’s capital adequacy score or financial risk profile.”
Secondary market
Municipal bonds were mostly stronger on Wednesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the two- to 13-year and 16- to 28-year maturities, rose less than a basis point in the 14-year maturities and remained unchanged in the one-year, 15-year and 29- to 30-year maturities.
High-grade munis were stronger with yields calculated on MBIS’ AAA scale rising less than one basis point in the one- to 30-year maturities.
Municipals were stronger along Municipal Market Data’s AAA benchmark scale, which showed yields falling as much as one one basis point in both the 10-year muni general obligation and the 30-year muni maturity.
Treasury bonds were stronger as the 30-year bond yield fell under 3% as stock prices rose.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 86.5% while the 30-year muni-to-Treasury ratio stood at 98.1%, 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 40,321 trades on Tuesday on volume of $10.53 billion.
California, Texas and New York were the states with the most trades, with the Golden State taking 17.224% of the market, the Lone Star State taking 12.216% and the Empire State taking 10.053%.
Treasury sells $16B reopened 2-year notes
The Treasury Department Wednesday auctioned $16 billion of one-year 10-month floating rate notes with a high discount margin of 0.042%, at a 0.033% spread, a price of 99.983009.
The bid-to-cover ratio was 2.79. Tenders at the high margin were allotted 48.96%.
The median discount margin was 0.030%. The low discount margin was 0.010%.
The index determination date is June 25 and the index determination rate is 1.900%.
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.
