Municipal bonds on Wednesday added on to the gains made during Tuesday’s rally while several new deals came to market in a kickoff to this holiday-shortened trading week.
Impact over the geopolitical concerns about Italy and Spain continued to be evident in the market.
“What you saw yesterday was somewhat or a replay of what we saw in Brexit two years ago,” John Mousseau, managing director of municipals at Cumberland Advisors said on Wednesday morning.
There was a swift reaction by equity markets and a flight to quality in U.S. Treasury debt with a backdrop of geopolitical concerns in Italy and Spain, he noted.
“The backing and filling process begins today, just as you saw two years ago after a down 700 Dow day,” Mousseau said. “Investors focus more locally and realized things were OK. We expect this to be similar.”
He expects that with some volatility in the stock market, there will be little leakage from the June and July reinvestment period.
“Most of that will come back into the muni market, which should augur well — particularly for intermediate and longer munis, which is where the value is,” Mousseau added.
Secondary market
Municipal bonds were stronger on Wednesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points 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 two basis points across the curve.
Municipal Market Data’s AAA benchmark scale was unchanged, with yields steady in the 10-year general obligation muni and flat in the 30-year muni maturity.
Treasury bonds turned weaker as stock prices moved higher.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 87.0% while the 30-year muni-to-Treasury ratio stood at 97.0%, 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 38,364 trades on Tuesday on volume of $8.15 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 14.549% of the market, the Empire State taking 13.086% and the Lone Star State taking 9.874%.
Primary market
On Wednesday, Bank of America Merrill Lynch priced the South Carolina State Port Authority’s $325 million of Series 2018 revenue bonds subject to the alternative minimum tax.
Wells Fargo Securities is expected to price Anchorage, Alaska’s $184.86 million of general obligation bonds for retail investors on Wednesday ahead of the institutional pricing on Thursday.
BAML is set to price Fort Collins, Colo.’s $130 million of electric utility enterprise revenue bonds on Wednesday.
In the competitive arena on Wednesday, the Brainerd Independent School District No. 181, Minn., sold $143.58 million of GOs under the Minnesota credit enhancement program. Information was not immediately available.
Also on Wednesday, the Las Vegas Valley Water District, Nev., competitively sold $100 million of GO water improvement bonds which are additionally secured by pledged revenues.
UBS Financial won the bonds with a TIC of 3.5860%.
Since 2008, the district has sold about $3.6 billion of bonds with the most issuance occurring in 2016 when is offered $606 million of securities. The district did not come to market in 2013.
Wednesday’s bond sales
South Carolina:
Bond Buyer 30-day visible supply at $11.27B
The Bond Buyer's 30-day visible supply calendar increased $2.44 billion to $11.27 billion on Wednesday. The total is comprised of $5.68 billion of competitive sales and $5.59 billion of negotiated deals.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
