Municipal bonds were decidedly stronger at mid-session, traders said, as U.S. Treasuries surged in a flight-to-quality bid as U.S. equities plunged in the wake of a stock market meltdown in China.
The muni market will see a revived primary calendar this week, with several large negotiated and competitive sales on tap.
Secondary Market
The yield on the 10-year benchmark muni general obligation was four to six basis points weaker from 1.92% on Thursday, while the 30-year yield weakened four to six basis points from 2.82%, according to a read of Municipal Market Data's triple-A scale.
Treasuries were higher in midday trading on Monday. The yield on the two-year Treasury fell to 1.02% from 1.06% on Thursday, while the 10-year Treasury yield dropped to 2.21% from 2.29% and the 30-year Treasury bond yield decreased to 2.94% from 3.03%.
The Shanghai Composite Index fell almost 7% before newly installed circuit breakers kicked in to halt trading. U.S. stocks took note and followed suit, moving sharply lower in early trading. By mid-session, the Dow Jones Industrial Average was off about 450 points while the Nasdaq Composite Index lost around 150 points and the S&P 500 Index lost nearly 50 points.
The 10-year muni to Treasury ratio was calculated on Thursday at 84.4% compared with 82.6% on Wednesday, while the 30-year muni to Treasury ratio stood at 93.5% versus 92.1%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 11,373 trades on Thursday on volume of $1.49 billion.
Primary Market
The market comes back to life this week as total volume is estimated by Ipreo at $3.33 billion. The calendar consists of $2.86 billion of negotiated deals and $472.8 million of competitive sales.
On the negotiated slate, the Board of Regents of the University of Texas will be coming to market will two deals totaling $450 million.
Bank of America Merrill Lynch is set to price the $250 million of Series 2016A taxable revenue financing system bonds and the $200 million of Series 2016B revenue financing system green bonds on Thursday.
Both series are rated triple-A by Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Also on the negotiated calendar, BAML is expected to price the South Carolina Public Service Authority's $382 million of revenue obligation Series 2016A tax-exempt refunding bonds on Thursday.
Stifel is set to price Orange County, Calif.'s $334.31 million of taxable Series 2016A pension obligation bonds on Thursday. The issue is rated AA by S&P and Fitch.
And JPMorgan Securities is set to price on Thursday the KU Central Development Corp.'s $333.18 million of Series 2016 lease revenue bonds, which are being issued through the Wisconsin Public Finance Authority. The issue is rated Aa2 by Moody's.
Proceeds from the University of Kansas offering will fund an expansion of its Lawrence campus using a new public-private partnership model.
In the competitive arena, the Massachusetts School Building Authority will sell $150 million of Series 2016A senior dedicated sales tax bonds on Wednesday. The deal is rated Aa2 by Moody's and AA-plus by S&P and Fitch.
On the short-term slate, Colorado will sell by competitive bid $339 million of Series 2015B education loan program tax and revenue anticipation notes. The TRANS are due June 29.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $791.5 million to $8.32 billion on Monday. The total is comprised of $4.21 billion competitive sales and $4.11 billion of negotiated deals.
Last Week's Most Active Sectors
Revenue bonds comprised 54.71% of new issuance in the week ended Dec. 31, down from 55.11% in the previous week, according to Markit. General obligation bonds comprised 37.60% of total issuance, up from 36.72%, while taxable bonds made up 7.68%, down from 8.17%.
Some of the most actively traded issues by type were in Minnesota, California and Florida, according to Markit.
In the GO bond sector, the Minnesota 4s of 2030 traded 22 times. In the revenue bond sector, the Imperial Irrigation District, Calif., 3 1/8s of 2035 traded 26 times. And in the taxable bond sector, the Hollywood Beach Community Development District, Fla. 6 1/4s of 2045 traded eight times.
Municipal Bond Funds See Inflows
Municipal bond funds ended the year on a strong note, seeing inflows for the 13th straight week, according to Lipper data released late Thursday.
Weekly reporting funds saw $1.30 billion of inflows in the week ended Dec. 30, after inflows of $809.476 million in the previous week, Lipper said.
The four-week moving average remained positive at $788.604 million after being in the green at $554.747 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 also experienced inflows, gaining $701.681 million in the latest week, on top of inflows of $529.995 million in the previous week. Intermediate-term funds had inflows of $421.495 million after inflows of $288.196 million in the prior week.
National funds saw inflows of $1.16 billion after inflows of $779.774 million in the prior week. High-yield muni funds reported inflows of $300.160 million in the latest reporting week, after an inflow of $291.366 million the previous week.
Exchange traded funds saw inflows of $211.200 million, after inflows of $31.351 million in the previous week.
In the week ended Dec. 22, long-term, long-term municipal bond funds saw inflows, according to the Investment Company Institute. Muni funds saw $1.262 billion of inflows after $647 million of inflows in the previous week, ICI reported.
