Prices of top-rated municipal bonds finished unchanged on Monday, traders said, as the week’s primary market action kicked off with the retail pricing of a deal from the New York City Transitional Finance Authority.
Secondary Market
The yield on the 10-year benchmark muni general obligation was steady on Monday from 2.02% on Friday, while the yield on the 30-year GO was flat from 3.07%, according to the final read of Municipal Market Data's triple-A scale.
Treasury prices were mostly flat on Monday, with the yield on the two-year Treasury unchanged from 0.60% on Friday, while the 10-year yield remained at 2.02% and the 30-year yield increased to 2.88% from 2.86%.
The 10-year muni to Treasury ratio was calculated on Monday at 99.7% versus 98.6% on Friday, while the 30-year muni to Treasury ratio stood at 106.6% compared to 106.6%, according to MMD.
Muni to Treasury ratios for the 10-year and 30-year munis are now about 16% higher than a year ago, according to Bank of America Merrill Lynch Global Research.
For October, the BAML Muni Master Index has returned 0.257%, compared with 0.284% and 0.750%, respectively for the Treasury Master Index and the U.S. Corporate IG Master Index. For the year to date, the muni index returned 2.062% and was close to the Treasury index, which had a total return of 2.064%, while it outperformed the corporate index, which returned 0.676%.
The best performance area in munis so far this year has been seen in maturities over 22 years and in the BBB rated sectors, according to the BAML.
Primary Market
This week’s calendar totals $7.9 billion, according to Ipreo, and consists of $5 billion of negotiated deals and $2.9 billion of competitive sales.
The NTYC TFA is coming to market with the biggest offerings -- $1 billion of bonds altogether, consisting of a big negotiated deal and two smaller competitive sales.
On Monday, JPMorgan Securities opened the first of a two-day retail order period for the TFA’s $749.28 million of future tax secured subordinate bonds. The deal is set to be priced for institutions on Wednesday.
The $350 million of Fiscal 2016 Subseries B-1 bonds were priced for retail as 5s to yield 3.19% in 2035 and as 3 5/8s to yield 3.67% in 2039; no retail orders were taken in the 2028-2034 or 2036-2038 maturities.
The $346.94 million of Fiscal 2016 Series C bonds were priced to yield from 0.83% with a 5% coupon in 2018 to 3.13% with a 3% coupon in 2030; a 2017 maturity was offered as a sealed bid.
The $52.34 million of Fiscal 2016 Series D bonds were priced to yield from 0.83% with a 3% coupon in 2018 to 3.13% with a 3% coupon in 2030; the 2016 and 2017 maturities were offered as sealed bids.
These bonds are rated Aa1 by Moody’s Investors Service and triple-A by both Standard & Poor’s and Fitch Ratings.
On Wednesday, the TFA will offer $250 million of bonds in two competitive sales consisting of $198.32 million of Series B, Subseries B-2 taxable bonds and $51.69 million of Series B, Subseries B-3 taxable bonds. These bonds are rated triple-A by Fitch.
In September, the TFA sold $1.5 billion of future tax secured subordinate new money bonds, according to Carol S. Kostik, deputy comptroller for public finance. The September sales included $750 million of tax-exempt and $250 million of taxable fixed-rate bonds and $150 million of variable-rate demand bonds.
On Tuesday, the state of California will be selling $960.96 million of various purpose general obligation and refunding bonds in three separate competitive sales.
Bid group A will consist of $105.96 million of taxable bonds, bid group B will consist of $322.5 million of tax-exempt GO refunding bonds and bid group C will consist of $532.5 million tax-exempt GO refunding bonds. All three sales are rated Aa3 by Moody’s, AA-minus by S&P and A-plus by Fitch.
The state of Ohio will also be in the competitive arena with the sale of $300 million Series 2015C higher education GOs. The issue is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
Also on Tuesday, RBC Capital Markets is expected to price the Tacoma School District No. 10, Pierce County, Wash.’s $$370 million of Series 2015 unlimited tax GO and refunding bonds. The issue is rated AA1 by Moody’s and AA-plus by S&P.
And BAML is set to price the South Carolina State Port Authority’s $288 million of Series 2015 revenue bonds, subject to the alternative minimum tax. The issue is rated A1 by Moody’s and A-plus by S&P.
Previous Week's Most Actively Traded Sectors
Revenue bonds comprised 57.89% of new issuance in the week ended Oct. 16, up from 57.34% in the previous week, according to Markit. General obligation bonds comprised 34.00% of total issuance, down from 34.48%, while taxable bonds made up 8.11%, down from 8.18%.
Some of the most actively traded issues in the week were in New York, New Jersey and Puerto Rico.
In the revenue bond sector, the Port Authority of New York & New Jersey 4s of 2045 were traded 81 times. In the GO bond sector, the Puerto Rico commonwealth GO 8s of 2035 were traded 29 times. And in the taxable bond sector, the Port Authority of New York & New Jersey 4.81s of 2065 were traded 25 times, Markit said.
Barclays Sees Strong Muni Performance Ahead
High-quality tax-exempts are continuing to benefit from falling Treasury rates, as many investors have decided the Federal Reserve is unlikely to tighten in December, with market sentiment assuming no interest rate hike in October, according to the latest municipal credit research report from Barclays.
Municipals have been following Treasury yields lower and have also been outperforming, with muni-Treasury ratios continuing to decline, the report says.
“Going into the last two months of 2015, we still see scope for a relatively strong municipal performance, as muni technicals are becoming more favorable (net issuance is expected to be negative, while outflows are subsiding),” Barclays said. “In our view, ratios could decline marginally, but the lower the rates go, the stronger is the pushback from investors; hence, to achieve better performance investors might have to become more aggressive.”
