Municipal bond market ‘technically sound, psychologically hesitant’

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The municipal market was winding up the week on a tentative note as Connecticut offered its general obligations to institutional investors.

“The market is technically sound but has been psychologically hesitant,” said one New York trader. “With a possible break/move to lower rates possible (or at a minimum no break to higher rates) ... the muni market is turning more positive.”

He added that unlike Treasuries, munis have dropped against a backdrop of positive technical factors that include much lower supply and positive cash positions.

“This has led to defensive posturing and translated into a steeper MMD rate and ratio curve. Effectively it’s the same as being short the Treasury market,” he said.

“Munis are a bit firmer in the midrange and long end today, we underperformed Tuesday and the muni to Treasury ratios got to attractive points – 90% at the 10-year, and almost 100% on the long end,” said one Mid-Atlantic trader. “That seems to trigger some buying recently. But the longer trends of institutional secondary market selling and high dealer inventory still seem to be with us.”

At the close on Wednesday, the 10-year muni-to-Treasury ratio was calculated at 88.0% compared with 88.2% on Tuesday, while the 30-year muni-to-Treasury ratio stood at 98.6% versus 98.6%, according to Municipal Market Data. Last week, the 10-year ratio was at 85.8% while the 30-year ratio was at 96.8%.

Primary market
Loop Capital Markets priced Connecticut’s $620 million of GO and GO refunding bonds institutions after a one-day retail order period.

The deal was increased in size due to demand, some traders reported. The sale amount was originally $617 million.

The deal is rated A1 by Moody’s Investors Service, A-plus by S&P Global Ratings and Fitch Ratings and AA-minus by Kroll Bond Rating Agency.

Thin supply has underwriters tripping over each other, according to David Tawil, president of Maglan Capital.

“Therefore, even though Connecticut may be a relatively troubled issuer and other issuers who are borrowing now wouldn’t normally get the market’s attention, the thin supply may end up being beneficial to them,” he said.

“On the other hand, we are solidly in a rising rate environment, and the stock market volatility has picked up massively in recent days, although corporate bond market volatility (both investment-grade and high-yield) has been pretty tame in comparison to the stock market.”

Earlier on Wednesday, Michael Pietronico, chief investment officer at Miller Tabak Asset Management, said that “the most interesting deal to the market [on Wednesday] should be the Connecticut State GO deal, which will likely be priced at a concession due to the fairly constant negative headlines about the state's finances.”

Since 2008, the Constitution State has sold about $32 billion of securities, with the most occurring in 2008 when it sold $4.21 billion and the least, excluding this year, in 2017 when it sold $1.54 billion.
Piper Jaffray priced the Prosper (Texas) Independent School District's $177 million of Series 2018 unlimited tax school building bonds.

The deal is backed by the Permanent School Fund Guarantee Program and rated triple-A by Moody’s and S&P.

Wednesday's bond deals

Click here for the Connecticut institutional pricing

Click here for Connecticut retail pricing

Prosper ISD, Texas:
Click here for the Prosper deal

Click here for the Republic pricing

Bond Buyer 30-day visible supply at $10.05B
The Bond Buyer's 30-day visible supply calendar decreased $935.7 million to $10.05 billion on Wednesday. The total is comprised of $2.99 billion of competitive sales and $7.06 billion of negotiated deals.

NYC MWFA plans $425M bond sale
The New York City Municipal Water Finance Authority said on Wednesday that it plans to sell $425 million of tax-exempt fixed rate bonds on Wednesday, April 4, after a one-day retail order period.

Proceeds from the sale will be used to refund certain outstanding bonds.

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

Previous session's activity
The Municipal Securities Rulemaking Board reported 44,179 trades on Monday on volume of $11.68 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 15.673% of the market, the Empire State taking 11.726% and the Lone Star State taking 10.719%.

Treasury sells $15B 10-year FRNs
The Treasury Department Wednesday auctioned $15 billion of one-year 10-month floating rate notes with a high discount margin of 0.049%, at a zero spread, a price of 99.910268. The bid-to-cover ratio was 2.78.

Tenders at the high margin were allotted 47.55%.

The median discount margin was 0.028%. The low discount margin was 0.010%. The index determination date is March 26 and the index determination rate is 1.760%.

Treasury also auctioned $29 billion of seven-year notes, with a 2 5/8% coupon and a 2.720% high yield, a price of 99.398415. The bid-to-cover ratio was 2.34.

Tenders at the high yield were allotted 4.76%. All competitive tenders at lower yields were accepted in full. The median yield was 2.670%. The low yield was 2.550%.

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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