Where oh where is our muni supply? Weekly volume plunges to $2.9B

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Seek, and ye shall find is good advice but unlikely to help buyers looking for municipal bonds next week.

Supply plunges for the upcoming week, with Ipreo estimating volume at only at $2.9 billion, down from this week’s revised total of $5.0 billion, according to updated data from Thomson Reuters.

Next week’s calendar is composed of $1.7 billion of negotiated deals and $1.2 billion of competitive sales.

So far this year, average weekly volume has been about $4 billion. In 2017, weekly volume averaged around $6 billion a week.

Some said the overall low volume in 2018 is still being impacted by the rush to market at year end.

“The first quarter of 2018 was a wobbly one for municipal bonds. Supply, as we know, was taken from this quarter and moved up to December of 2017 in order to beat the tax bill,” John R. Mousseau, director of fixed income at Cumberland Advisors, wrote in a Friday market comment. “Most of this ‘moved up’ issuance was in the form of advance refunding issues (which are not allowed under the new tax law) and private activity bonds (which ended up being allowed).”

He said the result was a December with over $65 billion of issuance. Retail and institutional investors snapped up the last of the 2017 supply, he said, well aware that there would be a dearth of offerings come 2018.

Looking ahead at next week’s light calendar, a New York trader said it resembled a calendar ahead of a holiday week, however, Easter and spring break are still two weeks away.

“Some buyers could have been positioning themselves this morning ahead of the light calendar, and that’s why it’s a quiet afternoon,” he explained.

“I would have thought two weeks from now — Easter week — would have been the slow week,” John Donaldson, director of fixed income at The Haverford Trust Company, said at noon on Friday about the skimpy calendar next week.

Additionally, he said, March has been particularly light on the reinvestment front, with a record low dollar volume of bonds called on March 15th.

“We had never had so few dollars to reinvest on a 1st or 15th of a month,” he noted. “I gather we are not alone. Perhaps the lack of buyers asking for product influences the timing of the calendar.”

The New York trader said the assumption that issuers are timing rates may or may not be true.

“Forecasters say rates are rising, but the 10-year is still at 2.84% and they assumed it would be well through 3% now — maybe issuers are looking at that and holding off to see how it plays out,” the trader said.

“We’re not seeing rising rates,” he added. “They could just be holding off at lower rates, but that’s anyone’s guess.”

Primary market
The biggest negotiated deal of the week is coming from the Philadelphia School District. Bank of America Merrill Lynch is scheduled to price the district’s $251 million of Series 2018A general obligation bonds on Thursday.

The bonds are backed by the Pennsylvania state aid intercept program and rated A2 by Moody’s Investors Service and A-plus by Fitch Ratings. The credit has underlying ratings of Ba2 from Moody’s and BB-minus from Fitch.

In the competitive arena on Tuesday, Anne Arundel County, Md., is selling $263.66 million of Series 2018 GOs consisting of consolidated general improvement bonds and consolidated water and sewer bonds.

The deal is rated Aa1 by Moody’s and AAA by S&P Global Ratings.

Also on Tuesday, the city and county of San Francisco is selling $251.35 million of GOs, consisting of Series 2018A clean and safe neighborhood parks bonds of 2012, and Series 2018B transportation and road improvement bonds of 2014.

The deal is rated Aaa by Moody’s and AA-plus by S&P and Fitch.

Bond Buyer 30-day visible supply at $7.3B
The Bond Buyer's 30-day visible supply calendar decreased $289.9 million to $7.30 billion on Friday. The total is comprised of $2.98 billion of competitive sales and $4.32 billion of negotiated deals.

Secondary market
After some brisk morning trades, the afternoon was shaping up to be quiet in the municipal market, according to a New York trader, who attributed the lackluster activity to investors preoccupied with March Madness and weekend plans.

“The buyside was busy this morning, and we started the day with some buyers, but then it started to level off and now it looks like it’s a quiet afternoon,” he said. “The general mood is tiredness — and investors not willing to put money at risk before the weekend,” he added.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended March 16 were from California, Oklahoma and Colorado issuers, according to Markit.

In the GO bond sector, the California 3.625s of 2047 traded 48 times. In the revenue bond sector, the Oklahoma Development Financing Authority 4.125s of 2057 traded 28 times. And in the taxable bond sector, the Colorado 4.047s of 2038 traded 14 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended March 16, according to Markit.

On the bid side, the Puerto Rico Commonwealth GO 5.75s of 2037 were quoted by 36 unique dealers. On the ask side, the California GO 3.625s of 2047 were quoted by 350 dealers. And among two-sided quotes, the Puerto Rico Commonwealth GO 8s of 2035 were quoted by 23 unique dealers.

Previous session's activity
The Municipal Securities Rulemaking Board reported 43,166 trades on Thursday on volume of $13.688 billion.

California, Texas and New York were the states with the most trades, with the Golden State taking 15.388% of the market, the Empire State taking 11.106% and the Lone Star State taking 9.711%.

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

The weekly reporters saw $339.142 million of inflows in the week of March 14, after inflows of $406.753 million in the previous week.
Exchange traded funds reported inflows of $76.237 million, after outflows of $97.946 million in the previous week. Ex-ETFs, muni funds saw $262.905 million of inflows, after inflows of $504.699 million in the previous week.

The four-week moving average turned positive at $125.589 million, after being in the red at -$70.049 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 $181.790 million in the latest week after inflows of $218.275 million in the previous week. Intermediate-term funds had inflows of $152.733 million after inflows of $201.010 million in the prior week.

National funds had inflows of $356.119 million after inflows of $383.340 million in the previous week. High-yield muni funds reported inflows of $110.948 million in the latest week, after inflows of $127.660 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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