Municipal market closes out May steady

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The municipal market concluded the final trading session of May on steady footing, with secondary yields remaining flat Friday amid a pickup in issuance.

Meanwhile, New York City will begin to reopen starting June 8, the mayor and governor said Friday.

Generic municipal yields have held at steady levels, though some sources said that is a signal that a breakout in movements in either direction could occur.

“Month-end position squaring following an impressive muni rally in May led to mixed and variable tax-exempt trading on Friday that failed to provide a consistent directional bias one way or another,” according to Refinitiv MMD.

The bid-side is heading out longer as investors seek yield, sources said. Inquiry is increasingly gravitating out the curve for whatever concession is available, which is turning up in trade flow data from the Municipal Securities Rulemaking Board. That data is showing volume between four and 11 years has about a 30% market share and another 55%-60% is out 12 years and longer, a Pennsylvania trader said.

State of Illinois bonds tightened by 10 to 20 basis points as a follow up to last weekend’s budget passage, according to ICE Data Services.

High-yield issues were slightly higher on the day.

Tightening spreads and low yields ended the week on Friday as demand for municipal bonds was expected to overwhelm the more than $6 billion in volume heading to the primary market next week.

“It seems we have finally hit some outright yield resistance as one- to five-year triple A yields are at all-time lows, forcing buyers to extend out the curve and move down in credit quality,” Justin Horowitz, Vice President of trading at AllianceBernstein said Friday.

Even though the triple-A benchmarks have been steady for multiple trading sessions, the market has been strong with spreads continuing to compress.

The strength saw yields decline on lower-quality paper.

“As high-yield fund outflows subsided, benchmark liquid high-yield names such as Buckeye Tobacco, COFINA, and Illinois GOs all tightened 20 to 25 basis points on the strength,” Horowitz said.

In addition, he said last week's NuStar Logistics new issue traded up eight basis points. The Guam Water deal this week, he said, was the only “real yield” and summoned demand over 22 times the amount available, bumped 25 basis points, and then rallied another 33 basis points on the break, according to Horowitz.

Looking ahead, the high-yield spreads should continue to tighten as the generic market will continue to see a supply-demand imbalance.

“Next week's yield calendar is again very light, so we are expecting spreads to continue to grind tighter as high-yield funds look to re-deploy cash and the secondary market selling pressure has all but abated,” Horowitz said.

“Looking at the high-grade, tax-exempt calendar, we would expect subscription levels to be heavy next week as there does not appear to be enough supply to satiate the market's demand,” he added.

Primary market
In the primary, several deals are still being placed on the day-to-day calendar and are led by a $1.5 billion triple-A taxable Yale University deal with Barclays Capital as head underwriter.

The New York City Municipal Water Finance Authority (Aa1/AA+/AA+/) has $628 million of water and sewer system second general resolution revenue bonds led by Siebert Williams Shank & Co., LLC on Tuesday.

The Washington Metropolitan Area Transit Authority (/AA//AA+) will bring $545 million of dedicated revenue bonds led by Barclays Wednesday.

City of Riverside, CA (/AA/AA-/) brings another California taxable pension obligation sale of $430 million with BofA Securities at the helm.

The Massachusetts Bay Transportation Authority (Aa3/AA//) has $392 million of subordinated sales tax bonds also with BofA as lead.

The California County Tobacco Securitization Agency will price $359 million of Tobacco Settlement bonds on behalf of the Los Angeles County Securitization Corporation with Jefferies LLC.

The City of Henderson, Nevada (Aaa2/AA+//) will bring $289 million of general obligation exempt utility system bonds and taxable various purpose bonds. J.P. Morgan Securities LLC leads Tuesday.

The Department of Water and Power of the City of Los Angeles has $240 million water system refunding revenue bonds coming on Thursday led by Wells Fargo Securities.

The San Jose-Evergreen Community College district of Santa Clara County, California (Aa1/AA+//) will price $225 million of GOs on Tuesday led by Piper Sandler & Co.

The State of Wisconsin still has its $200 million of taxable transportation refunding bonds on the docket but no date set. Wells Fargo is lead manager.

The Texas Department of Housing and Community Affairs (Aaa/AA+//) will price $175 million of single family mortgage revenue bonds on Thursday with RBC Capital Markets heading the deal.

The State of Maine (Aa2/AA//) has $141 million of GOs, exempt and a small taxable portion on Thursday with Goldman Sachs & Co. running the books.

There are several other larger deals over $100 million from issuers in California, Michigan, Washington, and North Carolina.

In the competitive space, Miami-Dade County, Florida (AA) will bring $169 million of taxable GOs on Thursday.

Portland, Oregon will bring $164 million of taxables on Wednesday.

And, Virginia Beach Development Corporation (/AA+/AA+/) will sell $158 million on Wednesday.

Secondary trading
Trading was relatively thin, but keeping benchmarks steady were:

North Carolina GOs, 5s of 2021, 0.18%-0.17%. San Antonio, TX GO 5s of 2021 at 0.21%-0.20%. Arlington County, VA GO 5s of 2021 at 0.19%-0.18%.

Texas waters, 5s of 2023, traded at 0.24%-0.23%. Hennepin County, Minnesota 5s of 2024 traded at 0.34%-0.32%. Maryland GO 5s of 2025 traded at 0.36%.

Collin County, Texas Community College 5s of 2029 traded at 0.84%-0.88%.

Iowa Finance Authority green 5s of 2036 traded at 1.37%-1.36%. Texas waters, 3s of 2039, traded at 1.96% (originally priced at 2.13%.)

Washington GOs, 5s of 2040, were at 1.58%. A week ago they traded at 1.63%.

Northside Texas ISD 3s of 2047 traded at 2.14%-2.09%. Wednesday they traded around the same.

Secondary market data
Municipals ended little changed Friday as traders held back to close out the month.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yields on the 2021-23 maturities were steady at 0.11%, 0.16% and 0.23%, respectively. The yield on the 10-year GO was unchanged at 0.84% while the 30-year was flat at 1.65%.

The 10-year muni-to-Treasury ratio was calculated at 130.0% while the 30-year muni-to-Treasury ratio stood at 116.2%, according to MMD.

The ICE AAA municipal yield curve showed maturities unchanged, with the 2021-2023 maturities at 0.13%, 0.16% and 0.22%. The 10- and 30-years were also unchanged at 0.82% and 1.65, respectively%.

ICE said the 10-year muni-to-Treasury ratio stood at 133% while the 30-year ratio was at 113%.

IHS Markit’s municipal analytics AAA curve showed the 2021 maturity at 0.11%, the 2022 maturity at 0.16% and the 2023 maturity at 0.24% while the 10-year muni was at 0.85% and the 30-year stood at 1.65%.

The BVAL curve showed the 2021 maturity remained at 0.06% and the 2022 at 0.12% down one basis point. BVAL also showed the 10-year muni unchanged at 0.80%% while the 30-year was unchanged at 1.68%.

Munis were also flat on the MBIS benchmark scale, with yields steady in the 10- and 30-year maturities.

Lipper reports $1B inflow
Investors remained bullish on municipal bonds and continued to put cash into bond funds in the latest reporting week.

In the week ended May 27, weekly reporting tax-exempt mutual funds saw $1.092 billion of inflows, after inflows of $1.840 billion in the previous week, according to data released by Refinitiv Lipper Thursday.

Exchange-traded muni funds reported inflows of $220.758 million, after inflows of $605.643 million in the previous week. Ex-ETFs, muni funds saw inflows of $870.959 million after inflows of $1.234 billion in the prior week.

The four-week moving average was positive at $776.244 million, after being in the green at $189.374 million in the previous week.

Long-term muni bond funds had inflows of $740.931 million in the latest week after inflows of $1.916 billion in the previous week. Intermediate-term funds had outflows of $102.658 million after inflows of $138.070 million in the prior week.

National funds had inflows of $996.906 million after inflows of $1.277 billion while high-yield muni funds reported inflows of $106.727 million in the latest week, after inflows of $773.521 million the previous week.

Bond Buyer indexes weaken
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, fell six basis points to 3.74% from 3.80% the week before.

The Bond Buyer's 20-bond GO Index of 20-year general obligation yields dropped 21 basis points to 2.16% from 2.37% in the previous week.

The 11-bond GO Index of higher-grade 11-year GOs decreased 21 basis points to 1.69% from 1.90% the prior week.

The Bond Buyer's Revenue Bond Index declined 21 basis points to 2.58% from 2.79% from the previous week.

The yield on the U.S. Treasury's 10-year note rose to 0.70% from 0.68% the week before, while the yield on the 30-year Treasury increased to 1.47% from 1.40%.

Chip Barnett contributed to this report.

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