A stronger market continues; taxable advance refundings are here to stay

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The last remaining deals of the week priced into a muni market that continues to perform strongly, as technical factors and drivers persist.

Primary market
JP Morgan priced the Louisiana Offshore Terminal Authority’s (A3/NR/A-) $175.53 million deepwater port revenue remarketing bonds for the Loop LLC Project.

Bank of America Securities priced the Dormitory Authority of the State of New York’s (Aa3/ /A+) $141.43 million of facilities revenue bonds.

BofAS also priced DASNY’s $560.8 million of taxable facilities revenue bonds.

“At the beginning of the year, if someone would have said that munis would reach or even be close to $400 billion in issuance, you would have looked at them as if they were crazy,” said one New York trader. “But here we are in November and around $360 billion.”

Jeffrey Lipton, managing director and head of muni research and strategy said that the only reason why we are approaching the $400 billion plateau is because taxable advance refunding deals have heavily populated the weekly calendars thanks to low interest rates and compelling cost savings math that found a way around the moratorium on tax-exempt advance refundings.

“Assuming the right rate environment, spread comparisons and compelling math calculations, we expect to see an even heavier plate of taxable advance refunding offerings next year,” Lipton said. “If these taxable deals come with the right structure that aligns with the asset/liability needs of life insurance companies, we could see renewed interest from this institutional buyer, thus potentially supporting muni returns.”

The trader noted that the issuance keeps on coming, the yields remain range-bound and the inflows keep flowing into the asset class.

“It seems like nothing can slow down the market right now, not even political headwinds from the China-U.S. trade war,” the trader said. “The holidays are literally the only thing that will be a hindrance.”

Next week is one of those holiday weeks and an early look at the calendar shows bleak issuance, with only four deals $100 million or larger scheduled as of press time.

Healthy yields in New Jersey
Thursday’s municipal market saw brisk demand for new issues, especially in New Jersey, where an attractive healthcare deal piqued interest for its couponing structure amid an overall selloff, according to a New Jersey manager.

“Today’s market was down a little — probably a half point to a little more in the 10- to 30-year bonds,” Howard Mackey, managing director at NW Financial, said on Thursday, saying the climate is a usual pattern after the run-up over the prior three days.

The $100 million New Jersey Health Care Authority deal that was priced on Wednesday for Valley Health System was highly sought-after by investors as some of the maturities were several times oversubscribed on major maturities in the initial offering, according to Mackey, whose firm was a co-manager.

“I think the market was very excited about the deal,” he said of the long bonds with 3% coupons due in 2049 that were priced attractively at 80 to 100 basis points at a 3.15% yield — which was seven basis points lower than the initial pricing.

The spread was higher than the double-A and triple-A market — which appealed to the large mutual funds, whose are typically credit sensitive, Mackey said.

Investors, he said, found value in the longer bonds beyond the call date where lead underwriters at Morgan Stanley structured the deal with 4% and 3% coupons instead of the standard 5% coupons. The 4% bonds, for instance, were 25 to 30 basis points higher than the usual 5% coupons.

Portland, Maine touts successful first ever green bond sale
The City of Portland, Maine, issued its first ever green bond and the first green bond in the airport sector on Tuesday.

"The bond pricing was very successful, as we had subscriptions of 5.7 times over the issue size, and exceptional interest among institutional investors," said Paul Bradbury, airport director, Portland International Jetport. "Although small at roughly 1% of sales, retail sales were important to this issuance. Maine investors accounted for 68% of these retail sales."

He added that the all-in true interest cost for this issuance is 2.99% well below the 5.27% we had for the Series 2010 Bonds.

Secondary market
Munis were stronger on the MBIS benchmark scale, with yields falling by less than a basis point in the 10-year maturity and by three basis points in the 30-year maturity. High-grades were also stronger, with yields on MBIS AAA scale falling by less than a basis point in the 10-year and by three basis points in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yields on both the 10- and 30-year GO’s were steady at 1.50% and 2.09%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 84.6% while the 30-year muni-to-Treasury ratio stood at 93.6%, according to MMD.

Stocks were trading lower as Treasuries were mostly higher. The Dow Jones Industrial Average was down about 0.10% in late trading as the S&P 500 Index fell around 0.6% while the Nasdaq lost almost 0.15%.

The Treasury three-month was down and yielding 1.567%, the two-year was up and yielding 1.603%, the five-year was up and yielding 1.616%, the 10-year was higher and yielding 1.775% and the 30-year was up and yielding 2.235%.
Muni money market funds see outflow
Tax-exempt municipal money market fund assets gained $637.9 million, raising their total net assets to $138.50 billion in the week ended Nov. 18, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 187 tax-free and municipal money-market funds ticked up to 0.74% from 0.73% from the previous week.

Taxable money-fund assets were down $24.25 billion in the week ended Nov. 19, bringing total net assets to $3.355 trillion. The average, seven-day simple yield for the 808 taxable reporting funds was fell to 1.34% from 1.35% from the prior week.

Overall, the combined total net assets of the 995 reporting money funds decreased $23.62 billion to $3.493 trillion in the week ended Nov. 19..

Previous session's activity
The MSRB reported 37,518 trades Wednesday on volume of $16.60 billion. The 30-day average trade summary showed on a par amount basis of $10.53 million that customers bought $5.85 million, customers sold $2.78 million and interdealer trades totaled $1.91 million.

California, New York and Texas were most traded, with the Golden State taking 16.095% of the market, the Empire State taking 12.822% and the Lone Star State taking 11.499%.

The most actively traded security was the New York City Transitional Finance Authority revenue 5s of 2040, which traded six times on volume of $30 million.

Most Bond Buyer yield indexes fall, BB40 spikes
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, vaulted 22 basis points to 3.63% from 3.41% the previous week.

The Bond Buyer's 20-bond GO Index of 20-year general obligation yields was down six basis points to 2.79% from 2.85% from the week before.

The 11-bond GO Index of higher-grade 11-year GOs fell six basis points to 2.33% from 2.39% the prior week.

The Bond Buyer's Revenue Bond Index dropped down six basis points to 3.27% from 3.33% last week.

The yield on the U.S. Treasury's 10-year note lowered to 1.78% from 1.82% the week before, while the yield on the 30-year Treasury decreased to 2.24% from 2.31%.

Treasury auctions announced
The Treasury Department announced these auctions:

  • $32 billion seven-year notes selling on Nov. 27 at 11:30 a.m.;
  • $41 billion five-year notes selling on Nov. 26 at 1 p.m.;
  • $40 billion two-year notes selling on Nov. 25 at 1 p.m.;
  • $18 billion one-year 11-month 0.300% floating rate notes selling on Nov. 26 at 11:30 a.m.;
  • $39 billion 181-day bills selling on Nov. 25 at 11:30 a.m.; and
  • $45 billion 90-day bills selling on Nov. 25 at 11:30 a.m.

The Treasury Department sold $12 billion of inflation-indexed 9-year 8-month TIPs at a 0.149% high yield, an adjusted price of 101.340677, with a 1/4% coupon. The bid-to-cover ratio was 2.40. Tenders at the market-clearing yield were allotted 72.07%. Among competitive tenders, the median yield was 0.100% and the low yield 0.008%, Treasury said.

Treasury also auctioned $50 billion of four-week bills at a 1.550% high yield, a price of 99.879444. The coupon equivalent was 1.578%. The bid-to-cover ratio was 2.82. Tenders at the high rate were allotted 99.02%. The median rate was 1.530%. The low rate was 1.500%.

Treasury also auctioned $40 billion of eight-week bills at a 1.540% high yield, a price of 99.760444. The coupon equivalent was 1.569%. The bid-to-cover ratio was 2.89. Tenders at the high rate were allotted 83.26%. The median rate was 1.510%. The low rate was 1.490%.

Gary E. Siegel and Christine Albano 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.

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