Muni trading brisk as retail investors take second look at 4% coupons

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There was a healthy pulse in the municipal market on Wednesday as secondary trading was brisk amid Treasury weakness, according to a New York trader.

“You have a little resurgence in retail for the 4% structure and that is a positive in the market,” he said Wednesday afternoon.

“As we get to cheaper levels, the 4% structure seems like for retail and insurance companies, is interesting,” he said, especially for modest crossover buyers who are also participating on a limited basis and are able to achieve a 4.15% after-tax yield.

“Investors are seeing some new bonds at new levels,” and they continue to be interested now that Treasuries are approaching some key support levels closer to 3% in 10 years, the trader noted.

He said he bought some of that structure from the week’s largest deal, the $1.7 billion Texas water transaction, for some individual customers.

“The market was in such a trading range for so long and now we are breaking out of that and it’s healthy for the market,” he explained. “They are seeing some different structures at different prices.”

Demand for new issues structured with 4% coupons at a discount is growing and he expects it to continue into next week.

“It has provided the market with a little foothold and a focal point after three to four weeks of 4% bonds at soft premiums,” he said. “Buying 4% at 99, you can sell that to retail and the first opportunity to do it, people are taking advantage of it.”

Primary market
Wilson County, Tenn., sold $107 million of Series 2018 unlimited tax general obligation school bonds on Wednesday.

Citigroup won the deal with a true interest cost of 3.4642%.

Proceeds of the sale will be used to finance various school improvements. The financial advisor is Stephens; the bond counsel is Bass Berry.

The deal is rated AA-plus by S&P Global Ratings.

Since 2008, the county has sold almost $500 million of bonds, with the most issuance occurring in 2012 when it sold $108.1 million. It did not come to market in 2011.
In the short-term sector, Bank of America Merrill Lynch priced Long Beach, Calif.’s $325 million of Series 2018A harbor revenue refunding short-term notes which are due in 2020.

The deal carries ratings of Aa2 from Moody’s and AA/F1-plus ratings by Fitch.

Citigroup received the official award on the Texas Water Development Board’s $1.7 billion revenue bond deal consisting of $1.67 billion of Series 2018B state water implementation revenue fund for Texas revenue bonds and $35.59 million of Series 2018C taxables.

Wednesday’s bond sales

Click here for the Wilson County deal

Click here for the Long Beach deal

Click here for the TWDB’s official award

Bond Buyer 30-day visible supply at $5.13B
The Bond Buyer's 30-day visible supply calendar decreased $3.42 billion to $5.13 billion for Wednesday. The total is comprised of $2.17 billion of competitive sales and $2.97 billion of negotiated deals.

Secondary market
Municipal bonds were weaker on Wednesday, according to a late of the MBIS benchmark scale. Benchmark muni yields rose as much as one basis point in the one- to 30-year maturities.

High-grade munis were also weaker, with yields calculated on MBIS' AAA scale rising as much as one basis point across the curve.

And municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation and the yield on 30-year muni maturity rising one basis point.

Treasury bonds were weaker as stock prices traded mixed.

“Muni bond yields are moving higher today, with the front end of the curve up a couple of basis points and longer maturities up in the one basis point range,” ICE Data Services said in a late day market comment. “High yielders are also one to two basis points higher. Taxable bond yields are up one to as many as three basis points in the long end, in line with the Treasury move.”

On Wednesday, the 10-year muni-to-Treasury ratio was calculated at 84.1% while the 30-year muni-to-Treasury ratio stood at 99.8%, 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 43,241 trades on Tuesday on volume of $11.26 billion.

California, New York and Texas were the municipalities with the most trades, with Golden State taking 16.86% of the market, the Empire State taking 12.048% and the Lone Star State taking 10.311%.

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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