Municipal bonds hold firm as last of week's big deals sell

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Municipal bonds held onto gains as buyers snapped up bonds from Alabama and Kansas issuers on Thursday, marking the last wave of big issuance to hit the screens this week.

Primary market
Wells Fargo Securities priced and repriced Auburn University, Ala.’s $216.87 million of Series 2018A general fee revenue bonds.

The deal is rated Aa2 by Moody’s Investors Service and AA-minus by S&P Global Ratings.

Morgan Stanley priced the Kansas Department of Transportation’s $147 million of Series 2004C highway revenue index bonds, Series 1-4.

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

Citigroup received the official award on the Golden State Tobacco Securitization Corp.’s $1.68 billion of Series 2018A-1 tobacco settlement asset-backed bonds, comprised of serial and turbo term bonds.

S&P assigns the deal preliminary structured finance ratings as follows: BBB on the 2030 to 2035 serial maturities and BBB-minus to the 2036 turbo term bonds. S&P did not rate the 2047 turbo terms.

A New York trader said that the new issue market generated brisk demand this week, especially for the California tobacco deal.

The offering attracted significant investor attention, the trader said, with some yields priced at or slightly above 5%. He also said California paper drew strong demand.

JPMorgan Securities received the official award on the Colorado Health Facilities Authority’s $257.06 million of Series 2018A and $86.34 million of Series 2018B hospital revenue bonds for the Adventist Health System/Sunbelt Obligated Group.

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

Looking to the short-term sector, a flat yield curve and aggressive levels were to blame for some balances on new note deals and other short-term tax-exempt products, according to a Memphis trader on Thursday morning.

Note deals from Houston and Idaho that priced this week saw some trading at a 1.55% yield Thursday, he said, which was slightly attractive against a 2019 bond yielding 1.52% and the SIFMA one-year note rate of 1.50%.

Otherwise, he said it was “pretty darn quiet” in the short-term market. “Inventory on the Street is relatively high, as dealers try to attract new cash,” he said. “It’s no grab-fest.”

He described the municipal market as compressed and noted that the muni to Treasury ratios have been the lowest since the fall of 2017. “We’re priced pretty richly [on the short end] so it’s going to have to back up a bit — especially with the Fed movement last week,” he said.

“Nobody likes the flatness of the yield curve right now,” but traders are being forced to stay short if they need to invest and want to avoid the interest rate and duration risk on the long end. The note market “should be heating up” and the timing of the flurry of short paper should help cheapen prices, the trader said.

Thursday's bond sales
Click here for the Auburn University repricing

Click here for the Auburn University deal

Click here for the DOT deal

Click here for the tobacco written award

Click here for the tobacco repricing

Click here for the HFA award

Secondary market
Municipal bonds were mostly stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the four- to 30-year maturities and rose less than a basis point in the one- to three year maturities.

High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling as much as one basis point in the five- to 30-year maturities and rising less than a basis point in the one- to four-year maturities.

The calendar may only say June, but some municipal traders were reporting an early glimpse of the summer doldrums on Thursday afternoon. Comatose is how one New Jersey trader described the mood in the secondary market.

“The tone today is if you see a trade you’re lucky,” he said before the market close. Retail demand is “really quiet” and any business is new-issue based, or the result of customer bid wanted lists.

“Between the Fed reiterating their plan of raising rates and the angst in the stock market because of the tariff war, people don’t know what to do, so they are just waiting to see what happens next,” he said.

The typical summer slowdown usually starts around the July 4 holiday and runs through August, but Thursday’s market felt extremely lackluster, he said. “It’s only June, but especially considering the decreased supply we have seen lately, heaven only knows what the summer doldrums will look like.”

Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed yields unchanged in the 10-year muni general obligation and falling one basis point in the 30-year muni maturity.

Treasury bonds were weaker as stock prices turned lower.

On Thursday, the 10-year muni-to-Treasury ratio was calculated at 85.3% while the 30-year muni-to-Treasury ratio stood at 97.1%, 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 40,566 trades on Wednesday on volume of $13.48 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 13.365% of the market, the Empire State taking 12.359% and the Lone Star State taking 12.303%.

Tax-exempt money market funds saw outflows
Tax-exempt money market funds saw outflows of $1.63 billion, lowering total net assets to $136.06 billion in the week ended June 18, according to The Money Fund Report, a service of This followed an outflow of $1.96 billion to $137.69 billion in the prior week.
The average, seven-day simple yield for the 202 weekly reporting tax-exempt funds rose to 0.84% from 0.64% the previous week.

The total net assets of the 830 weekly reporting taxable money funds fell $63.62 billion to $2.626 trillion in the week ended June 19, after an outflow of $2.08 billion to $2.690 trillion the week before.

The average, seven-day simple yield for the taxable money funds increased to 1.49% from 1.41% from the prior week.

Overall, the combined total net assets of the 1,032 weekly reporting money funds fell $65.25 billion to $2.762 trillion in the week ended June 19, after outflows of $4.04 billion to $2.828 trillion in the prior week.

Treasury announces auction details
The Treasury Department on Thursday announced these auctions:

  • $30 billion of seven-year notes selling on June 28;
  • $36 billion of five-year notes selling on June 27;
  • $34 billion of two-year notes selling on June 26;
  • $16 billion of one-year 10-month 0.033% floating rate notes selling on June 27;
  • $42 billion of182-day bills selling on June 25; and
  • $48 billion of91-day bills selling on June 25.

Treasury sells $5B 30-year TIPS
The Treasury Department Thursday sold $5 billion of inflation-indexed 30-year bonds at a 0.934% high yield, an adjusted price of 103.306254, with a 1% coupon. The bid-to-cover ratio was 2.62.

Tenders at the market-clearing yield were allotted 89.73%.

Among competitive tenders, the median yield was 0.890% and the low yield was 0.850%, Treasury said.

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 Municipal bond funds Golden State Tobacco Securitization Corporation Colorado Health Facilities Authority Kansas Department of Transportation State of California State of Texas State of New York City of Houston, TX State of Idaho