Top-rated municipal bonds finished substantially weaker on Tuesday, according to traders, who returned to their desks after the holiday weekend looking ahead to a new issue calendar totaling over $8 billion.
The yield on the 10-year benchmark muni general obligation rose three basis points on Tuesday to 1.67% from 1.64% on Friday, while the yield on the 30-year increased five basis points to 2.50% from 2.45%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Tuesday on worries about a December interest rate hike by the Federal Reserve coupled with fears that the recent decision by Saudi Arabia and Russia to limit oil production would cause a spike in crude prices and inflation. On Wednesday, the minutes from the Federal Open Market Committee's September meeting will be released, giving the market an indication of policy makers' thinking on interest rates.
The yield on the two-year Treasury rose to 0.86% from 0.84% on Friday, the 10-year Treasury yield gained to 1.76% from 1.74% and the yield on the 30-year Treasury bond increased to 2.50% from 2.47%.
The 10-year muni to Treasury ratio was calculated at 94.9% on Tuesday compared to 94.7% on Friday, while the 30-year muni to Treasury ratio stood at 100.0% versus 99.3%, according to MMD.
Prior Week's Actively Traded Issues
Revenue bonds comprised 57.47% of new issuance in the week ended Oct. 7, up from 57.27% in the previous week,
Some of the most actively traded issues by type were from Massachusetts, New York and California. In the GO bond sector, the Massachusetts 2s of 2017 were traded 33 times. In the revenue bond sector, the New York Metropolitan Transportation Authority 2s of 2017 were traded 33 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 24 times.
Previous Week's Top Underwriters
The top negotiated and competitive underwriters of last week included JPMorgan Securities, Citigroup, Morgan Stanley, Bank of America Merrill Lynch and Barclays, according to Thomson Reuters data. In the week of Oct. 2-Oct. 8, JPMorgan underwrote $1.21 billion, Citi $2.15 billion, Morgan Stanley $2 billion, BAML $1.51 billion and Barclays $629.8 million.
Primary Market
Volume for the week is estimated at $8.41 billion, consisting of $7.58 billion of negotiated deals and $834.80 million of competitive sales.
On Wednesday, Raymond James & Associates is expected to price the Cypress-Fairbanks Independent School District, Texas' $426.76 million of unlimited tax school building and refunding bonds.
The deal is backed by the Permanent School Fund guarantee program and rated triple-A by Moody's Investors Service and S&P Global Ratings.
Also on Wednesday, Bank of America Merrill Lynch is slated to price the Charlotte-Mecklenburg Hospital Authority, N.C.'s $381 million of Series 2016A healthcare revenue refunding bonds for the Carolinas Healthcare System. The deal is rated Aa3 by Moody's and AA-minus by S&P.
In the competitive arena on Wednesday, the Campbell County Sanitation District No. 1, Ky., is selling $138.02 million of Series 2016 revenue refunding bonds. The deal is rated Aa3 by Moody's and AA by S&P.
On Thursday, Bank of America Merrill Lynch is slated to price the state of Illinois' $1.35 billion of Series of October 2016 general obligation refunding bonds.
The deal is rated Baa2 by Moody's, triple-B by S&P and BBB-plus by Fitch Ratings.
Also on Thursday, Citigroup is set to price the Great Lakes Water Authority, Mich.'s $1.32 billion deal consisting of $899 million of Series 2016 A, B, C & D water supply system senior lien and second lien revenue and revenue refunding bonds and $416 million of Series 2016 B & C sewage disposal system senior lien and second lien revenue refunding bonds.
Ahead of the sale, Moody's upgraded the senior liens to A3 from Baa1 and the second liens to Baa1 from Baa2 while Fitch upgraded the senior liens to A from BBB and the second lien to A-minus from BBB-minus. S&P affirmed its A-minus rating on the senior lien bonds and the BBB-plus rating on the second lien bonds.
JPMorgan Securities is expected to price the Maricopa County Industrial Development Authority, Ariz.'s $766.14 million revenue bonds for Banner Health on Thursday. The deal is rated AA-minus by S&P and Fitch.
Ramirez Revises 2016 Gross Supply Forecast
Samuel A. Ramirez & Co. last week raised its projection for 2016 gross supply by 19% to $453 billion from an originally estimated $378 billion.
"If this issuance amount is realized, 2016 will be a record gross issuance year in nominal terms (not adjusted for inflation)," Peter Block, Managing Director at Ramirez, said in a weekly market commentary. "The highest historical gross supply year was 2007, when issuance hit about $430 billion."
He said several states would see major changes in supply patterns over the coming month.
"Gross supply through September 2016 was $339.51 billion while net supply was $20.88 billion. We see net muni market supply at +$2.11 billion over the next 30 days, a reversal of the year to date trend," Block wrote. "The states that stand to experience the largest change in outstanding debt include Alaska (+$2.33 billion), Pennsylvania (+$1.79 billion), New York (-$1.37 billion), Texas (+$1.35 billion), and California (-$987 million). Alaska is particularly notable, with new issuance increasing the state's total outstanding debt by nearly 22%."
