Bond yields at a glance

MBIS benchmark (~AA)

MBIS AAA

MMD AAA

U.S. Treasuries

10 year

2.443

2.350

2.20 (+1-3bp)

2.67

30 year

2.908

2.800

2.92 (+1-3bp)

2.92

MBIS indices are updated hourly on the Bond Buyer Data Workstation.

Next week’s slip in supply may increase demand for municipal bonds slated to hit the market.

Ipreo estimates weekly volume at $5.25 billion, down from $6.61 billion this week, according to updated data from Thomson Reuters.

Next week’s calendar consists of $5.08 billion of negotiated deals and $164.2 million of competitive sales.

Topping next week’s slate is a $1.39 billion tobacco bond deal from the Pennsylvania Commonwealth Financing Authority. Jefferies is set to price the bonds on Wednesday.

The deal is rated A1 by Moody’s Investors Service, A by S&P Global Ratings and A-plus by Fitch Ratings.

Also on tap, Bank of America Merrill Lynch is set to price the state of Hawaii's $775 million of Series 2018 FT general obligation bonds and Series 2018 FU and FV taxable GOs on Tuesday.

The deal is rated Aa1 by Moody's, AA-plus by S&P and AA by Fitch.

And Wells Fargo Securities is expected to price the Hampton Roads Transportation Accountability Commission's $500 million of Series 2018A senior lien revenue bonds on Tuesday.

The deal is rated AA by S&P and AA-plus by Fitch.

There are no competitive sales of $100 million or above slated for next week.

Primary market
RBC Capital Markets priced the Main Street Natural Gas Inc.’s $834.985 million of Series 2018 gas supply revenue bonds on Friday.

The $584.985 million of Subseries 2018A bonds were priced as 4s to yield from 1.76% in 2019 to 2.33% and 2.36% in a split 2023 maturity. A 2048 maturity was priced as 4s to yield 2.38% with a mandatory tender date of 2023.

The $250 million of Subseries 2018B LIBOR index rate period bonds were priced at par to yield about 75 basis points above the one-month LIBOR.

The deal is rated A1 by Moody’s.

Bond Buyer 30-day visible supply at $7.12B
The Bond Buyer's 30-day visible supply calendar increased $415.7 million to $7.12 billion on Friday. The total is comprised of $903.1 million of competitive sales and $6.22 billion of negotiated deals.

Secondary market
The MBIS municipal non-callable 5% GO benchmark scale was mixed in midday trading while the MBIS AAA scale was also mixed.

The 10-year MBIS muni benchmark yield fell to 2.443% on Friday from the final read of 2.464% on Thursday, according to Municipal Bond Information Services. The MBIS 30-year benchmark muni yield rose to 2.908% from 2.907%.

The 10-year MBIS muni AAA yield fell to 2.350% on Friday from the final read of 2.368% on Thursday, according to Municipal Bond Information Services. The MBIS 30-year AAA muni yield rose to 2.800% from 2.793%.

The MBIS benchmark index is updated hourly on the Bond Buyer Data Workstation.

Top-rated municipal bonds are weaker at mid-session. The yield on the 10-year benchmark muni general obligation on Friday rose one to three basis points from 2.20%, while the 30-year GO yield gained one to three basis points from 2.78%, according to a midday read of MMD’s triple-A scale.

U.S. Treasuries were weaker in midday activity. The 10-year Treasury yield rose to 2.67% from 2.63% while the yield on the 30-year Treasury increased to 2.92% from 2.89%.

On Thursday, the 10-year muni-to-Treasury ratio was calculated at 82.3% compared with 83.0% on Wednesday, while the 30-year muni-to-Treasury ratio stood at 95.4% versus 94.8%, according to MMD.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended Jan. 26 were from California, Illinois and New York & New Jersey issuers, according to Markit.

In the GO bond sector, the Los Angeles Unified School District, 5s of 2024 traded 33 times. In the revenue bond sector, the Chicago Sales Tax Securitization Corp., 3.82s of 2048 traded 53 times. And in the taxable bond sector, the Port Authority of New York & New Jersey 2.114s of 2018 traded 16 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended Jan. 26, according to Markit.

On the bid side, Puerto Rico Sales Tax Financing Corp. revenue 6s of 2042 were quoted by 36 unique dealers. On the ask side, the California GO 5s of 2026 were quoted by 180 dealers. And among two-sided quotes, the California taxable 7.55s of 2039 were quoted by 31 unique dealers.

MSRB: Previous session's activity
The Municipal Securities Rulemaking Board reported 45,899 trades on Thursday on volume of $14.31 billion.

California, New York and Texas were the three states with the most trades on Tuesday, with the Golden State taking 14.435% of the market, the Empire State taking 10.12% and the Lone Star State taking 7.868%.

Tax reform & the muni market: The good, the bad, the ugly
The municipal bond market is mostly breathing a sigh of relief after it has had time to digest the possible effects of new U.S. tax legislation, according to a report from Nuveen.

As debates raged in the House of Representatives and the Senate, investors focused on possible changes to the tax treatment of some municipal bonds.

“Early in the process, there were serious concerns that tax law changes would have a drastic (and negative) effect on municipal bond supply,” John Miller, head of municipals at Nuveen, writes in the report. “Fortunately, however, municipal bonds were largely spared serious pain.”

Nuveen said the main takeaway is the changes apply only to newly issued municipal bonds, not existing paper.

Probably the best news from a municipal bond perspective was the sparing of private activity bonds, Miller wrote. The original House version of the bill would have eliminated the tax-exemption for PABs, which are used to fund hospitals, nursing homes, charter schools and universities.

“The final bill retains PABs’ tax-exempt status. Given that these bonds make up between 20% and 30% of the total municipal market, this is a welcome development for investors,” Miller wrote.

However, new issuance of advance refunding bonds will no longer be tax-exempt. “We do not expect these tax changes to have a significant impact on infrastructure spending, but issuers of these bonds will likely lose some funding flexibility,” Nuveen said. The lack of these types of bonds will reduce supply going forward, which could result in positive market technical conditions for existing bonds, the report said.

And changes to state and local tax deductibility could make municipal bonds more attractive, the report said. The bill caps the SALT deductibility at $10,000 for those who itemize their taxes. While the legislation could increase the combined federal, state and local tax burden on certain individuals. The changes to the deductibility of state and local taxes likely increases the demand for tax-exempt munis, particularly in states with high income and/or property taxes, Nuveen said.

“On balance, we expect reduced supply in 2018 because of an onslaught of issuance in late 2017 that occurred before we had clarity on any tax changes, as well as from the elimination of tax-exempt advance refunding bonds going forward,” Nuveen said. “We expect this reduction in supply to be positive for performance of the municipal market.”

Lipper: Muni bond funds saw inflows
Investors in municipal bond funds again put cash into the funds in the latest week, according to Lipper data released on Thursday.

The weekly reporters saw $781.160 million of inflows in the week of Jan. 24, after inflows of $1.18 billion in the previous week.

Exchange traded funds reported outflows of $17.950 million, after inflows of $118.046 million in the previous week. Ex-ETFs, muni funds saw $799.110 million of inflows, after inflows of $1.06 billion in the previous week.

The four-week moving average was positive at $744.164 million, after being in the green at $503.830 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds had inflows of $772.983 million in the latest week after inflows of $1.099 billion in the previous week. Intermediate-term funds had inflows of $329.453 million after inflows of $178.692 million in the prior week.

National funds had inflows of $776.001 million after inflows of $1.14 billion in the previous week.

High-yield muni funds reported inflows of $32.551 million in the latest week, after inflows of $206.925 million the previous week.

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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Chip Barnett

Chip Barnett

Chip Barnett is a journalist with more than 40 years of experience. Barnett is currently Senior Market Reporter for The Bond Buyer.
Aaron Weitzman

Aaron Weitzman

Aaron Weitzman is a markets reporter for The Bond Buyer, focusing on the sell side of the municipal bond market.