Municipal bonds finished out the year on a strong note, traders said, with yields on top-shelf maturities falling by as much as one basis point in Thursday's abbreviated trading session. The market was closed on Friday in celebration of New Year's Day, with trading set to resume on Monday.
Primary Market
The market will spring back to life in the upcoming week after its long holiday hibernation.
Total volume is estimated by Ipreo at $3.33 billion, which is made up 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 with 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.
Orange County recently received upgraded underlying ratings on the county's pension obligation bonds, as well as lease revenue bonds and recovery bonds. Before the upgrade they were rated AA-minus. The upcoming bond sale will be used to prepay the county's projected unfunded actuarial accrued liability and normal contribution to its retirement system for fiscal 2017.
The county expects to save $21 million by prefunding its 2016-17 payments to the Orange County Employees Retirement System, according to a staff report.
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.
Alan Jaffe, executive director at JPMorgan, leads the underwriting syndicate which includes Barclays, BAML, George K. Baum, and Wells Fargo Securities. The financial advisors from Public Financial Management are managing directors Lisa Daniel and June Matte.
With a dearth of new-money issues in the market and few from Kansas, the bonds are expected to attract a mix of retail and institutional investors, according to Theresa Gordzica, chief business and financial planner for the university. The sale marks KU's first use of a P3 for classroom buildings, in addition to dorms and dining facilities, Gordzica added.
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.
Secondary Market
Municipals were mostly higher on Thursday. The yield on the 10-year benchmark muni general obligation rose one basis point to 1.92% from 1.93% on Wednesday, while the 30-year yield was steady from 2.82%, according to the final read of Municipal Market Data's triple-A scale.
At the start of 2015, muni yields were only slightly higher. On Jan. 2, the yield on the 10-year muni stood at 2.01% while the yield on the 30-year muni was at 2.83%.
Treasury bonds were higher on Thursday. The yield on the two-year Treasury dipped to 1.06% from 1.08% on Wednesday, while the 10-year Treasury yield decreased to 2.27% from 2.30% and the 30-year Treasury yield dropped to 3.02% from 3.04%.
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 22,355 trades on Wednesday on volume of $3.48 billion.
The Week's Most Actively Quoted Issues
The Port Authority of New York & New Jersey, the Illinois State Toll Highway Authority and Puerto Rico were some of the most actively quoted names in the week ended Dec. 31, according to data released by Markit.
On the bid side, PANYNJ's taxable 4.81s of 2065 were quoted by 10 unique dealers. On the ask side, the Illinois State Toll Highway Authority's revenue 5s of 2032 were quoted by 13 unique dealers. And among two-sided quotes, the Puerto Rico Commonwealth GO 8s of 2035 were quoted by eight dealers.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Dec. 31 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.
Tax-Exempt Money Market Funds Post Inflows
Tax-exempt money market funds experienced inflows of $560.1 million, bringing total net assets to $254.16 billion in the week ended Dec. 28, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $2.81 billion to $253.60 billion in the previous week.
The average, seven-day simple yield for the 359 weekly reporting tax-exempt funds remained at 0.01% for the 139th straight week.
The total net assets of the 942 weekly reporting taxable money funds decreased $4.14 billion to $2.508 trillion in the week ended Dec. 29, after an inflow of $11.07 billion to $2.513 trillion the prior week.
The average, seven-day simple yield for the taxable money funds rose to 0.06% from 0.05% in the previous week.
Overall, the combined total net assets of the 1,301 weekly reporting money funds fell $3.58 billion to $2.763 trillion in the period ended Dec. 29, which followed an inflow of $13.88 billion to $2.766 trillion in the prior week.
Richard Williamson contributed to this report
