Municipal bond market gains critical supply

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A more robust new issue slate awaits municipal bond buyers as supply rises after a holiday-shortened trading week.

IHS Markit Ipreo forecasts weekly bond volume will increase to $4.9 billion from a revised total of $2 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $3.5 billion of negotiated deals and $1.4 billion of competitive sales.

Limited supply is still critical factor for performance, according to Jim Grabovac, senior portfolio manager at McDonnell Investment Management.

"It is still an undersupplied market, especially in terms of how much demand there is," he said. "We like the longer end of the curve. With the Fed doing an about-face after January meeting, expectations have changed going forward. "They have indicated a pause on tightening, as the muni curve continues to steepen."

Dawn Mangerson, senior portfolio manager at McDonnell, said that with tax season approaching, investors should take the opportunity to re-invest and put that money to work.
“Investors are looking at what happened last year, and are starting to shift more allocations to munis, versus corporates," Mangerson said.

Primary market
The week’s headliner will be Intel Corp., which will receive bond proceeds for projects from the Chandler Industrial Development Authority of Arizona and the Oregon Business Development Commission.

Bank of America Merrill Lynch is expected to price the $500 million of Chandler IDA Series 2019 industrial development revenue bonds and $100 million of Oregon BDC Series 250 economic development revenue bonds on Wednesday.

Ramirez & Co. is expected to price the Los Angeles Department of Airports’ $438 million of revenue bonds on Wednesday.

The issue consists of Series 2019A subordinate revenue bonds subject to the alternative minimum tax, Series 2019B subordinate revenue bonds not subject to the AMT and Series 2019C subordinate refunding revenue bonds not subject to the AMT.

The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.

In the competitive arena, the New York City Municipal Water Finance Authority is selling $390.415 million of Fiscal 2019 Series EE water and sewer system second general resolution revenue bonds in two offerings on Wednesday.

The deals consist of $275 million of Subseries EE-2 bonds and $115.415 million of Subseries EE-1 bonds.

The financial advisors are Lamont Financial Services and Drexel Hamilton. The bond counsel are Nixon Peabody and the Hardwick Law Firm.

The deals are rated Aa1 by Moody’s and AA-plus by S&P and Fitch.

Bond Buyer 30-day visible supply at $7.28B
The Bond Buyer's 30-day visible supply calendar increased $1.88 billion to $7.28 billion for Friday. The total is comprised of $2.11 billion of competitive sales and $5.17 billion of negotiated deals.

Lipper: Muni bond funds see inflows
Investors in municipal bond funds kept their confidence and put cash into them in the latest week, according to Lipper data released on Thursday.

The weekly reporters saw $1.469 billion of inflows in the week ended Feb. 20 after inflows of $1.451 billion in the previous week.
Exchange traded funds reported inflows of $95.27 million, after inflows of $821,000 in the previous week. Ex-ETFs, muni funds saw inflows of $1.374 billion after inflows of $1.449 billion in the previous week.

The four-week moving average remained positive at $1.283 billion, after being in the green at $1.125 billion 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 $919.663 million in the latest week after inflows of $998.428 million in the previous week. Intermediate-term funds had inflows of $377.716 million after inflows of $417.524 million in the prior week.

National funds had inflows of $1.291 billion after inflows of $1.240 billion in the previous week. High-yield muni funds reported inflows of $397.226 million in the latest week, after inflows of $452.473 million the previous week.

Secondary market
Municipal bonds were little changed Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the one- to six-year, 10- to 15-year and 22- to 30-year maturities and remained unchanged in the seven- to nine-year and 16- to 21-year maturities.

High-grade munis were mixed, according to MBIS, with muni yields falling less than one basis point in the three- to 12-year and 28- to 30-year maturities, rising less than a basis point in the 14- to 25-year maturities and remaining unchanged in the one- and two-year, 13-year and 26- and 27-year maturities.

Investment-grade municipals were stronger on Refinitiv Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation falling one basis point while the yield on the 30-year muni maturity dropped two basis points.

“The broader muni market is slightly better today. Rates are down by about one basis point from the 10-year maturities and longer,” ICE Data Services said in a Friday market comment. “Tobaccos are seeing similar movement with longer maturity yields down by one basis point. High-yield is unchanged for the day. The taxable side of the market is yielding 2.5 basis points less from the two-year and longer.”

Treasury bonds were stronger as stock prices traded higher.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 79.1% while the 30-year muni-to-Treasury ratio stood at 98.9%, 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.

COFINA bonds trading
Some of the restructured Puerto Rico Sales Tax Financing Corp. bonds were again actively trading on Friday.

The COFINA restructured Series A1 5% bonds of July 1, 2058, dated Aug. 8, 2018, (principal amount of issuance of $3.479 billion), were trading at a high price of 96.825 cents on the dollar and a low price of 94.833 cents compared to high and low prices of 100 cents and 94.4 cents on Thursday, 98.50 cents and 94.05 cents on Wednesday, 98.284 cents and 94.959 cents on Tuesday and 98.637 cents and 95.055 cents last Friday, according to the MSRB’s EMMA website.

Trading volume totaled $59.943 million in 107 trades compared to $99.196 million in 141 trades on Thursday, $57.341 million in 138 trades on Wednesday, $143.321 million in 103 trades on Tuesday and $166.912 million in 49 trades last Friday, EMMA reported.

The COFINA restructured Series Capital Appreciation 0% bonds of July 1, 2046, dated Aug. 8, 2018, (principal amount of issuance of $1.095 billion), were trading at a high price of 20.014 cents on the dollar and a low price of 14.32 cents, compared to high and low prices of 22.747 cents and 18 cents on Thursday, 20.759 cents and 17.666 cents on Wednesday, 20.836 cents and 18.712 cents on Tuesday and 22.657 cents and 19.835 cents on Friday, according to EMMA.

Trading volume totaled $36.123 million in 120 trades compared to $62.957 million in 166 trades on Thursday, $60.229 million in 139 trades on Wednesday, $69.424 million in 74 trades on Tuesday and $51.76 million in 19 trades last Friday, EMMA reported.

Previous session's activity
The Municipal Securities Rulemaking Board reported 42,015 trades on Thursday on volume of $13.73 billion.

California, Texas and New York were the municipalities with the most trades, with the Golden State taking 12.978% of the market, the Lone Star State taking 11.304% and the Empire State taking 9.72%.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended Feb. 22 were from Puerto Rico issuers, according to IHS Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 58 times. In the revenue bond sector, the Puerto Sales Tax Financing Corp. 5s of 2058 traded 148 times. In the taxable bond sector, the COFINA 4.55s of 2040 traded 33 times.

Week's actively quoted issues
Puerto Rico, Maryland and California names were among the most actively quoted bonds in the week ended Feb. 22, according to IHS Markit.

On the bid side, the COFINA revenue 5s of 2058 were quoted by 174 unique dealers. On the ask side, the Maryland GO 5s of 2025 were quoted by 158 dealers. Among two-sided quotes, the California taxable 7.55 of 2039 were quoted by 31 dealers.

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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Municipal bond funds New York City Municipal Water Finance Authority State of New York Los Angeles Department of Airports State of California State of Texas State of Maryland Commonwealth of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) Intel
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