Municipals end stronger after FOMC leaves interest rate unchanged

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Municipal bonds finished stronger on Wednesday in action that was subdued for much of the day ahead of the Federal Reserve’s monetary policy meeting.

The Federal Open Market Committee held the fed funds rate target at a range of 1.5% to 1.75%, and tweaked its post-meeting statement language on inflation to say it “is expected to run near the Committee's symmetric 2% objective over the medium term," and remove the phrase that it is "monitoring inflation developments closely."

Fitch Ratings said the new statement recognizes the recent rise in inflation and the strong recovery in business investment.

“The main change is dropping the previous reference to 'monitoring inflation closely,' " said Brian Coulton, Fitch's chief economist. "The rise in inflation looks to be about more than just base effects and, with the labor market this tight, will be hard for the Fed to ignore. We see three more hikes this year.”
Secondary market
“The market is very flat,” John Mousseau, portfolio manager at Cumberland Advisors, said Wednesday afternoon.

He said that municipals were following Treasurys, and bid lists seemed “a little heavier, but nothing special.”

Municipal bonds were stronger, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 30-year maturities.

High-grade munis were also stronger with yields calculated on MBIS’ AAA scale falling by as much as one basis point all across the curve.

Additionally, municipals were stronger according to Municipal Market Data’s AAA benchmark scale, which showed yields falling one basis point in the 10-year general obligation muni and dropping three basis points in the 30-year muni maturity.

Treasury bonds were little changed as stocks were mixed in late trade.

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 84.0% while the 30-year muni-to-Treasury ratio stood at 97.6%, according to MMD.

Lipton: Market remains fragile
Though ratios have cheapened, creating a buying opportunity, there is still some concern among retail investors this week, Jeffrey Lipton, managing director and head of municipal research at Oppenheimer & Co., wrote in a report on Monday.

“The muni market remains fragile with the ability to establish a stable bid proving to be quite challenging,” he said. “Under present circumstances, the retail investor tends to be a more defensive if not discerning buyer.”

Their behavior follows underperformance of municipals that moved relative value ratios to cheaper levels last week, with the 10- and 30-year benchmarks at 85% and 99% respectively on Friday versus 82% and 96% the previous week, according to Lipton.

“We view this as an opportunity to lock in more attractive ratios as we can expect richer muni prices to materialize,” he wrote.

Going forward, Oppenheimer’s outlook remains favorable given an improving technical backdrop, the report said.

“We would expect underwriters to price their offerings to move this week, particularly in light of the tentative buying patterns exhibited by both retail and institutional investors,” Lipton wrote. “At the currently cheaper prices, retail may be more interested, but the key to making a sale will likely be the ability to deliver the right coupon structure.”

Primary market
In the negotiated sector, Raymond James & Associates priced the Phoenix Industrial Development Authority’s $106.27 million of Series 2018A student housing and Series 2018B taxable student housing revenue refunding bonds for Arizona State University.

The deal is rated Baa3 by Moody’s Investors Service.

In the competitive arena, Nassau County, N.Y., sold $90.84 million of Series 2018A general improvement bonds.

UBS Financial won the bonds with a true interest cost of 3.7430%, one of the biggest competitive sales the firm has one since it got back into the business last year.

The deal is insured by Assured Guaranty Municipal and rated A2 by Moody’s, AA by S&P and A by Fitch Ratings.

The last time the county competitively sold comparable bonds was on June 1, 2017, when Citigroup won the Series 2017B general improvement bonds with a TIC of 3.1901%.

Nassau County also sold $59.74 million of Series 2018A bond anticipation notes.

Morgan Stanley won the BANs with a bid of 2.5% plus a premium of $270,002.20, an effective rate of 1.743163%.

The notes are rated SP1-plus by S&P and F1 by Fitch.

On Thursday, Wells Fargo Securities is set to price the Dormitory Authority of the State of New York’s $606 million of Series 2018A tax-exempt and Series 2018B taxable revenue bonds for New York University.

The deal comes a day after Goldman Sachs priced a $325 million DASNY deal for Columbia University.

Barclays Capital is expected to price the Norfolk (Va.) Economic Development Authority’s $150 million of Series 2018 hospital facilities revenue refunding bonds for Sentara Healthcare.

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

Wednesday’s bond sales

New York:
Click here for the Nassau County bond sale

Click here for the Nassau County note sale

Click here for the DASNY final pricing by Goldman

Click here for the Phoenix IDA deal

Bond Buyer 30-day visible supply at $9.3B
The Bond Buyer's 30-day visible supply calendar decreased $1.31 billion to $9.30 billion on Wednesday. The total is comprised of $3.66 billion of competitive sales and $5.64 billion of negotiated deals.

Previous session's activity
The Municipal Securities Rulemaking Board reported 46,456 trades on Tuesday on volume of $11.91 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 21.267% of the market, the Empire State taking 11.928% and the Lone Star State taking 9.4%.

Treasury to raise $33.9B of new cash
The Treasury Department announced Wednesday it will raise $33.9 billion of new cash with its quarterly refunding, selling $17 billion 30-year bonds on May 10, $25 billion 10-year notes on May 9 and $31 billion three-year notes on May 8.

Treasury said it will increase its auction totals by $27 billion over the next three months to offset changes to the Federal Reserve’s reinvestment policy.

Treasury is planning to add a two-month bill later this year and may add a new five-year TIPs auction.

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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