Muni market: Looking at short-dated bonds in a short trading week

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The municipal bond market on Monday was eyeing the week's limited holiday slate of new issues, dominated by taxable deals. The week consists of only four sessions, since trading will wrap up on Thursday with the market closed on Good Friday.

Meanwhile, BlackRock put out its latest commentary about its Strategic Municipal Opportunities Fund on Monday.

Peter Hayes, head of the firm’s municipal bonds group, said those with flexible strategies and an ability to be nimble around interest rate and policy uncertainty are likely to continue to outperform the broad municipal market.

The group, which oversees $129 billion in municipal assets, also said it prefers revenue bonds over general obligation bonds, which “can be subject to the political risks associated with state and local budget negotiations.”

“Given rising U.S. Treasury yields, we maintain a low duration profile in the fund,” the report said. “We favor short-dated bonds within a barbell strategy (i.e., greater exposures at the short and long ends of the yield curve versus the middle). We reduced exposure to maturities of 25 years plus and added to maturities of 0 to 2 years. The fund’s underweight exposure to the belly of the curve (10 to 18 years) proved beneficial for performance in February.”

BlackRock said that it increased its fund’s cash position by reducing exposure to the state and local tax-backed, healthcare and transportation sectors. The fund’s largest sector focuses continue to be transportation, health care and utilities.

From a credit perspective, the muni group at BlackRock continued reducing risk and increasing liquidity in the fund.

“We moved higher in quality by decreasing exposure to higher-yielding A and BBB-rated issues. As of month end, approximately 18% of the fund’s net assets were high yield municipal bonds, which primarily include tobacco, corporate backed, health care and education bonds,” the report said

Primary market
The weekly calendar is estimated at $3.69 billion, made up of $2.95 billion of negotiated deals and $738 million in competitive sales.

Barclays is scheduled to price George Washington University’s $793 million of Series 2018 taxable corporate CUSIP bonds on Tuesday. The deal is rated A1 by Moody’s Investors Service and A-plus by S&P Global Ratings.

Morgan Stanley is slated to price a combined total of $1.29 billion in two deals for Sutter Health, both on Tuesday. There will be a $684.48 million taxable corporate CUSIP deal and a $606.26 million tax-exempt sale.

The tax-exempts will be sold through the California Health Facilities Financing Authority while the taxables will be sold directly by Sutter Health. The deals are rated Aa3 by Moody’s, AA-minus by S&P and A-plus by Fitch Ratings.

Loop Capital Markets is expected to price Connecticut’s $617 million of GO and GO refunding bonds on Wednesday, following a one-day retail order period. The deal is rated A1 by Moody’s, A-plus by S&P and Fitch and AA-minus by Kroll Bond Rating Agency.

In the competitive arena on Tuesday, Oklahoma is selling $123.74 million of general obligation bonds in two sales consisting of $82.75 million of Series 2018 tax-exempt GOs and $40.99 million of Series 2018 taxable GOs.

Prior week's top underwriters
The top municipal bond underwriters of last week included Bank of America Merrill Lynch, Morgan Stanley, Goldman Sachs, Stifel and Ramirez, according to Thomson Reuters data.

In the week of March 18 to March 24, BAML underwrote $542.4 million, Morgan Stanley $331.2 million, Goldman $263.7 million, Stifel $226.7 million and Ramirez $226.5 million.
Previous session's activity
The Municipal Securities Rulemaking Board reported 36,065 trades on Friday on volume of $10.18 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 17.135% of the market, the Empire State taking 9.657% and the Lone Star State taking 9.312%.

Prior week's actively traded issues
Revenue bonds comprised 57.51% of new issuance in the week ended March 23, unchanged from the previous week, according to Markit. General obligation bonds made up 36.67% of total issuance, down from 37.15%, while taxable bonds accounted for 5.82%, up from 5.34% a week earlier.

Some of the most actively traded bonds by type in the week ended March 23 were from Puerto Rico, New York and Wisconsin issuers, according to Markit.

In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 38 times. In the revenue bond sector, the New York City Transitional Finance Authority 3.625s of 2047 traded 70 times. And in the taxable bond sector, the Wisconsin Public Finance Authority 4.269s of 2040 traded 28 times.
Treasury auctions bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were lower, as the three-months incurred a 1.760% high rate, down from 1.780% the prior week, and the six-months incurred a 1.895% high rate, off from 1.950% the week before.

Coupon equivalents were 1.792% and 1.940%, respectively. The price for the 91s was 99.555111 and that for the 182s was 99.041972.

The median bid on the 91s was 1.720%. The low bid was 1.680%. Tenders at the high rate were allotted 60.28%. The bid-to-cover ratio was 2.98.

The median bid for the 182s was 1.860%. The low bid was 1.800%. Tenders at the high rate were allotted 90.74%. The bid-to-cover ratio was 3.06.

Treasury sells $30B 2-year notes

The Treasury Department Tuesday auctioned $30 billion of two-year notes with a 2 1/4% coupon at a 2.310% yield, a price of 99.883557. The bid-to-cover ratio was 2.91.

Tenders at the high yield were allotted 50.43%. The median yield was 2.276%. The low yield was 1.888%.

Treasury to sell $65B 4-week bills

The Treasury Department on Monday said it will sell $65 billion of four-week discount bills Tuesday. There are currently $103.998 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 George Washington University California Health Facilities Financing Authority State of Connecticut Commonwealth of Puerto Rico Wisconsin Public Finance Authority