Prices of top-rated municipal bonds closed mostly weaker on Friday, traders said, with yields remaining unchanged to as much as one basis point stronger.
Trading was quiet as the market took a quick summer break to digest the more than $4.7 billion in new supply that was priced during the week.
Secondary Trading
The yield on the 10-year benchmark muni general obligation closed up one basis point to 2.20% from 2.19% on Thursday, while the yield on the 30-year GO remained at 3.07%, according to the final read of Municipal Market Data's triple-A scale.
In contrast, the 10-year muni yield stood at 2.21% on Friday, Aug. 7, while the 30-year muni yield was at 3.08%
Treasury prices were mixed on Friday, with the yield on the two-year Treasury note rising to 0.73% from 0.71% on Thursday, while the 10-year yield increased to 2.19% from 2.18% and the 30-year yield decreased to 2.84% from 2.86%.
The 10-year muni to Treasury ratio was calculated on Friday at 100.3% versus 100.2% on Thursday, while the 30-year muni to Treasury ratio stood at 108.1% compared to 107.5%, according to MMD.
Primary Market
Total volume for the week came in at revised at $4.69 billion, according to Thomson Reuters. This consisted of $3.79 billion of negotiated deals and $867.8 million of competitive sales.
Topping the calendar was the Kansas Development Finance Authority's $1 billion pension bond sale.
Bank of America Merrill Lynch priced the KDFA's $1 billion of Series 2015H taxable revenue bonds for the Kansas Public Employees Retirement System (KPERS). The bonds were rated Aa3 by Moody's Investors Service and AA-minus by Standard & Poor's.
Ahead of the sale, Moody's issued a report skeptical of the benefits of Kansas' sale of pension obligation bonds. "The bonds, which are rated one notch lower than the state at Aa3/stable outlook, will do little to solve the challenges surrounding Kansas' poorly funded state-administered pension plans," Moody's said.
Wells Fargo Securities priced Charlotte's $463 million of Series 2015 water and sewer system refunding revenue bonds. The issue was rated triple-A by Moody's, S&P and Fitch Ratings.
Wells Fargo Securities priced the Municipal Electric Authority of Georgia's $255 million of Series 2015A Plant Vogtle Units 3&4 Project J and Project P revenue bonds. The MEAG's Project J bonds were rated A2 by Moody's and A-plus by S&P and Fitch while the Project P bonds were rated Baa2 by Moody's and A-minus by S&P and Fitch.
Goldman, Sachs priced the District of Columbia's $380 million of Series 2015 hospital refunding revenue bonds for the Children's Hospital Obligated Group. The bonds were rated A1 by Moody's and A-plus by Fitch.
In the competitive arena, Citigroup won the Florida Board of Education's $308 million of Series 2015E public education capital outlay refunding bonds with a true interest cost of 2.15%. The issue was rated Aa1 by Moody's and triple-A by S&P and Fitch.
Morgan Stanley priced the state of Michigan's $129 million of Series 2015A tax-exempt general obligation environmental program refunding bonds. The issue was rated Aa1 by Moody's, AA-minus by S&P and AA by Fitch.
The sale was the first time the state issued GOs since Moody's raised the state's GOs to Aa1 from Aa2 and the state saw a change by S&P in its outlook to positive. The state said the changes allowed it to get a lower interest rate when issuing the bonds.
Proceeds from the transaction will be used to refund existing state debt as the deal generated more than $13.5 million in present value savings.
"Our recent rating improvements independently demonstrate that Michigan and its economy are growing stronger," Gov. Rick Snyder said in a press release.
About 30 investors placed orders for the 13-year sale, which was nearly three times over-subscribed, the state said, allowing interest rates to be lowered to 2.34%.
"With interest rates still near historic lows, it was prudent to capitalize on this opportunity to lock in lower rates and generate ongoing budget savings," Treasurer Nick Khouri said in the release
BAML Raises Issuance Target for 2015
"Issuance this year has been tremendously high," Bank of America Merrill Lynch wrote in a Friday market comment. "We are raising our 2015 volume estimate of long-term bond issuance to $440 billion to $450 billion from the previous $400 billion."
BAML said month to date issuance as of Aug.13 was $13.2 billion, bringing issuance for the year to date to $271 billion, up 39.7% compared to the same period last year.
Municipal Bond Funds See Inflows
Municipal bond funds saw inflows in the latest week, according to the Lipper. Funds which report weekly saw $11.087 million of inflows in the week ended Aug. 12, after seeing outflows of $308.245 million in the previous week.
The latest inflow brings to 17 out of 33 weeks this year that the funds have seen a cash infusion. Inflows for the year to date are still in the green, totaling $2.964 million.
The four-week moving average remained negative at $61.280 million after being in the red at $71.365 million in the previous week. The moving average has now been negative for 12 weeks in a row. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds also experienced inflows, gaining $134.829 million in the latest week, after seeing outflows of $208.019 million in the previous week. Intermediate-term funds saw inflows of $8.368 million after seeing outflows of $1.413 million in the prior week.
Exchange traded funds saw inflows of $49.071 million, after experiencing inflows of $40.478 million in the previous week.
And high-yield muni funds saw inflows of $60.437 million in the latest reporting week, after seeing an outflow of $57.808 million the previous week. In the past 16 weeks, high-yield funds have seen outflows 11 times totaling $1.775 billion and inflows five times totaling $139.222 million.
The Week's Most Actively Quoted Issues
California, Washington and Puerto Rico were some of the most actively quoted names in the week ended Aug. 14, according to data released by Markit.
On the bid side, the California state tax 7.55s of 2039 were quoted by 12 unique dealers. On the ask side, the Washington state Healthcare Facilities Authority revenue 4s of 2045 were quoted by 17 dealers. And among two-sided quotes, the Puerto Rico Sales Tax Financing Corp. sales tax revenue 6.05s of 2036 were quoted by 13 dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues in the week ended Aug. 14 were in New York, Puerto Rico and Kansas, according to Markit.
In the revenue bond sector, the New York State Dormitory non-state supported debt 4s of 2036 were traded 61 times. In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 were traded 32 times. And in the taxable bond sector, the Kansas Development Financing Authority revenue 4.727s of 2037 were traded 33 times, Markit said.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 37,586 trades on Thursday on volume of $10.481 billion. The most active bond, based on the number of trades, was the New Jersey Educational Facilities Authority's Series 2015H revenue refunding bonds for Kean University 4s of 2039, which traded 233 times at an average price of 100.488, an average yield of 3.927%. The bonds were initially priced at 97.766 to yield 4.13%.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $1.49 billion to $8.92 billion on Friday. The total is comprised of $2.84 billion competitive sales and $6.08 billion of negotiated deals.
