Municipal bonds remain stronger as market awaits new issue supply
Municipal bonds were stronger on Monday as supply-starved investors awaited the week's planned $4.9 billion of new paper.
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 two basis points all across the curve.
Municipals were little changed according to Municipal Market Data’s AAA benchmark scale, which showed the 10-year general obligation muni yield steady and the 30-year muni maturity flat.
Treasury bonds were stronger as stocks rose.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 82.5% while the 30-year muni-to-Treasury ratio stood at 95.3%, according to MMD.
“The demand for munis won’t go away anytime soon,” said one New York trader. “There are significantly less bonds to buy then there has been the past few years, helping to drive demand.”
Activity on the short end of the curve has been noteworthy over the past few weeks, the trader said.
“There is so much more activity on the short-end right now, the yields are super attractive. The only thing to think about, is long-term let’s say we get a downturn in the economy, I’m not sure you want to be positioned in the front-end of the curve,” the trader said.
Over the long term, demand may depend on action in Washington on infrastructure.
“While last week’s positive performance may have provided the foundation for strong performance over the next few trading sessions, institutional municipal investors seem unconvinced over the long term,” Stephen Winterstein, managing director at Wilmington Trust, wrote in a Monday market comment. “Concern over how an infrastructure plan will materialize and the future of private activity bonds still looms and is likely to persist until a final version becomes law, something we do not think will not happen in 2018. The year-over-year supply deficit widened last week, and remains a technical positive to the extent that it keeps price declines in check, at least in part during periods of rising interest rates.”
The municipal bond market will see another moderate new issue calendar, with about $4.9 billion of offerings going up for sale this week. The slate is composed of $3.19 billion of negotiated deals and $1.67 billion of competitive sales.
Average weekly volume this year has been about $4.5 billion, down from last year’s average of over $6 billion a week.
The week’s deal headliner is a $635 million tax-exempt and taxable sale from Energy Northwest.
JPMorgan Securities is expected to price the Series 2018C tax-exempt and Series 2018D taxable electric revenue refunding bonds on Wednesday. The deal is rated Aa1 by Moody’s Investors Service, AA-minus by S&P Global Ratings and AA by Fitch Ratings.
A New York trader said the Energy Northwest deal should spark some good demand from investors in a supply-starved climate. He said the week’s volume was “a little above average for the year so far.”
Overall, municipals have outperformed other asset classes and have tightened and that has helped overall demand and performance, the trader added.
The Dormitory Authority of New York is back in the market with an education deal this week after selling two higher ed offerings last week.
Raymond James & Associates is set to price DASNY’s $591 million of Series 2018 A, B, C, D and E school districts financing program revenue bonds on Tuesday.
The Series A and E bonds are rated Aa3 by Moody’s and AA-minus by Fitch; the Series B bonds are rated Aa2 by Moody’s and AA-minus by Fitch; the Series C bonds are rated AA by S&P and AA-minus by Fitch; and the Series D bonds are rated Aa1 by Moody’s and AA-minus by Fitch.
In the competitive arena, the City and County of San Francisco is selling $382.04 million of general obligation bonds in three sales on Tuesday.
The deals consist of $189.735 million of Series 2018C 2014 earthquake safety and emergency response GOs; $142.23 million of Series 2018D taxable 2015 affordable housing GOs; and $50.075 million of Series 2018E 2016 public health and safety GOs.
The deals are rated Aaa by Moody’s and AA-plus by S&P and Fitch.
Prior week's top underwriters
The top municipal bond underwriters of last week included Goldman Sachs, Bank of America Merrill Lynch, JPMorgan Securities, Wells Fargo Securities and Citigroup, according to Thomson Reuters data.
In the week of April 30 to May 5, Goldman underwrote $1.28 billion, BAML $913.5 million, JPMorgan $439.5 million, Wells Fargo $437.4 million and Citi $227.1 million.
Previous session's activity
The Municipal Securities Rulemaking Board reported 36,032 trades on Friday on volume of $12.08 billion.
New York, California, and Texas were the states with the most trades, with the Empire State taking 18.388% of the market, the Golden State taking 16.091% and the Lone Star State taking 9.798%
Prior week's actively traded issues
Revenue bonds comprised 56.57% of new issuance in the week ended May 4, up from 56.21% in the previous week, according to Markit. General obligation bonds made up 37.99% of total issuance, down from 38.35%, while taxable bonds accounted for 5.44%, unchanged from a week earlier.
Some of the most actively traded bonds by type were from Nevada, New York and Illinois issuers.
In the GO bond sector, the Clark County, Nev., 5s of 2048 traded 27 times. In the revenue bond sector, the DASNY 5s of 2048 traded 39 times. And in the taxable bond sector, the Illinois 5.877s of 2019 traded 13 times.
Treasury auctions weekly bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were higher, as the three-months incurred a 1.840% high rate, up from 1.835% the prior week, and the six-months incurred a 2.000% high rate, up from 1.990% the week before.
Coupon equivalents were 1.874% and 2.048%, respectively. The price for the 91s was 99.534889 and that for the 182s was 98.988889.
The median bid on the 91s was 1.810%. The low bid was 1.780%. Tenders at the high rate were allotted 65.59%. The bid-to-cover ratio was 2.95. The median bid for the 182s was 1.980%. The low bid was 1.950%. Tenders at the high rate were allotted 60.56%. The bid-to-cover ratio was 3.12.
Treasury to sell $45B 4-week bills
The Treasury Department said it will sell $45 billion of four-week discount bills Tuesday. There are currently $86.997 billion of four-week bills outstanding.
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.