Municipals turn mixed as bond buyers prepare for a healthy volume slate

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Municipal bonds finished mixed on Monday ahead of the year’s biggest weekly slate of sales. Buyers are eagerly awaiting the almost $10 billion of supply that is slated to hit the market this week.

Secondary market
According to a late read of the MBIS benchmark scale, municipal bonds were mixed on Monday.

Benchmark muni yields fell as much as one basis point in the one- to seven-year and 18- to 30-year maturities and rose less than a basis point in the eight- to 17-year maturities.

High-grade munis were also mixed, with yields calculated on MBIS’ AAA scale falling by as much as two basis points in the one- to seven-year and 19- to 30-year maturities and gaining less than a basis point in the eight- to 18-year maturities.

According to Municipal Market Data’s AAA benchmark scale, municipals were weaker on Monday, with yields rising as much one basis point in the 10-year general obligation muni and gaining one basis point in the 30-year muni maturity.

Treasury bonds were slightly weaker as stocks rose.

On Monday, the 10-year muni-to-Treasury ratio was calculated at 81.9% while the 30-year muni-to-Treasury ratio stood at 94.7%, according to MMD.

Puerto Rico bond prices rise
Prices on the Puerto Rico Sales Tax Financing Corp.'s bonds rose on Monday as the bonds were some of the most actively traded municipal securities, according to the Municipal Securities Rulemaking Board’s EMMA website, after general obligation and COFINA holders announced the framework for settling a dispute over competing claims in Puerto Rico's debt restructuring.

Though the Puerto Rico Oversight Board rejected the deal, saying it didn't comply with the island's certified fiscal plan, participants said it could provide a starting point for a resolution.

In late activity, the COFINA Series 2007B 6.05% revenue bonds of 2036 were trading at a high price of 73 cents on the dollar compared to a high of 60.799 cents on Friday. Volume was brisk at $22.01 million in 17 trades compared to $120,000 in three trades on Friday.

The COFINA Series 2010A 5.5% first subordinate revenue bonds of 2037 were trading at a high price of 32 cents on the dollar compared to a high of 28.875 cents on Friday. Volume stood at $2.03 million in 13 trades compared to $110,000 in seven trades on Friday.

And the COFINA Series 2011C 5% current interest revenue bonds of 2040 were trading at a high price of 72.5 cents on the dollar compared to a high of 59.599 cents on Friday. Volume stood at $23.4 million in 14 trades compared to $240,000 in four trades on Friday.

In comparison, the benchmark Puerto Rico Commonwealth 8% general obligation bonds of 2035 were trading at a high price of 46.5 cents on the dollar compared to a high of 41.375 cents on Friday. Volume stood at $59.5 million in 33 trades compared to $1 million in one trade on Friday.

Primary market
This week’s volume is estimated at $9.9 billion, which is made up of $5.90 billion of negotiated deals and $3.99 billion of competitive sales.

Heavy demand for the day’s smaller competitive deals perked up what was otherwise a typical Monday, according to a New York trader.

“You came in this morning and govies were off on the screen and it seemed the competitive market was bid pretty well,” he said, pointing to a $35 million Madison County, Tenn., offering as the highlight of the day as it acquired 18 bids. “I was surprised; there have not been that many bids on a competitive deal lately,” he said, adding that the offering was appealing due to the issuer's infrequent market presence, diverse name in Tennessee, and structure with serials out to 10 years, which he said is in the wheelhouse of separately managed accounts.

Several big offerings are on tap this week and will benefit from good timing if investors are shopping early for spring reinvestment season, which officially kicks off June 1, and continues July 1.

According to another New York trader, this week’s supply will lend positive support to munis.

“It’s nothing that can disrupt the market, but actually will help the market,” he said, pointing to the Pennsylvania general obligation bond sale and the Grand Parkway Authority revenue offering in Texas. “When you have positive technicals and bigger deals, that usually brings price discovery,” the trader said.

On Tuesday, the New York City Transitional Finance Authority will be competitively selling $1.1 billion of Fiscal 2018 Series C tax-exempt and taxable fixed rate bonds in five sales.

The deals consist of $122.09 million Subseries C-1 tax-exempt bonds; $329.22 million of Subseries C-2 tax-exempt bonds; $398.9 million of Subseries C-3 tax-exempt bonds; $137.4 million of Subseries C-4 taxable bonds; and $112.6 million of Subseries C-5 taxable bonds.

Also on Tuesday, Boston is competitively selling $150 million of Series 2018A general obligation bonds.

The North Dakota Public Finance Authority is competitively selling $131.09 million of Series 2018A state revolving fund bonds.

And Nevada is competitively selling $116.76 million of Series 2018 highway improvement motor vehicle fuel tax revenue bonds.

Jefferies is expected to price the Pennsylvania Turnpike Commission’s $444.81 million of oil franchise tax bonds on Tuesday.

In the competitive arena on Wednesday, Pennsylvania will competitively sell $1.25 billion of its First Series of 2018 general obligation bonds. Proceeds will be used to finance various capital projects.

In the negotiated sector on Wednesday, Citigroup is expected to price the city and county of San Francisco Airport Commission’s $914 million of second series revenue and revenue refunding bonds.

And Goldman Sachs is set to price the Grand Parkway Transportation Corp.’s $911 million of subordinate tier toll revenue bonds and $610 million of bond anticipation notes on Wednesday.

Previous session's activity
The Municipal Securities Rulemaking Board reported 36,321 trades on Friday on volume of $9.34 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 17.45% of the market, the Empire State taking 14.814% and the Lone Star State taking 9.481%.

Prior week's actively traded issues
Revenue bonds comprised 56.11% of new issuance in the week ended May 11, down from 56.57% in the previous week, according to Markit. General obligation bonds made up 38.12% of total issuance, up from 37.99%, while taxable bonds accounted for 5.77%, up from 5.44% a week earlier.
Some of the most actively traded bonds by type were from Kansas, Virginia and New York issuers.

In the GO bond sector, the Wyandotte USD No. 203, Kan., 4s of 2048 traded 27 times. In the revenue bond sector, the Norfolk Economic Development Authority, Va., 4s of 2048 traded 57 times. And in the taxable bond sector, the DASNY 4.85s of 2048 traded 45 times.

Prior week's top underwriters
The top municipal bond underwriters of last week included Bank of America Merrill Lynch, Raymond James & Associates, Morgan Stanley, Citigroup and JPMorgan Securities, according to Thomson Reuters data.

In the week of May 6 to May 12, BAML underwrote $1.61 billion, Raymond James $726.2 million, Morgan Stanley $711.9 million, Citi $682.4 million and JPMorgan $579.9 million.
Treasury auctions discount bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were higher, as the $48 billion of three-months incurred a 1.890% high rate, up from 1.840% the prior week, and the $42 billion of six-months incurred a 2.035% high rate, up from 2.000% the week before.

Coupon equivalents were 1.925% and 2.085%, respectively. The price for the 91s was 99.522250 and that for the 182s was 98.971194.

The median bid on the 91s was 1.865%. The low bid was 1.835%. Tenders at the high rate were allotted 54.91%. The bid-to-cover ratio was 3.04.

The median bid for the 182s was 2.010%. The low bid was 1.980%. Tenders at the high rate were allotted 54.11%. The bid-to-cover ratio was 2.98.

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 $89.999 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.

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Primary bond market Secondary bond market State of California State of New York State of Texas State of Nevada Commonwealth of Pennsylvania Commonwealth of Puerto Rico Puerto Rico Sales Tax Financing Corp (COFINA) New York State Dormitory Authority North Dakota Public Finance Authority Grand Parkway Transportation Corp., TX City of Boston, MA