Top-rated municipal bonds finished steady to weaker on Friday in light activity, traders said, ahead of the upcoming week's $8.33 billion new issue slate.
The yield on the 10-year benchmark muni general obligation was unchanged from 1.75% on Thursday, while the 30-year muni yield rose one basis point to 2.70% from 2.69%, according to the final read of Municipal Market Data's triple-A scale.
On the week yields were sharply lower. On Thursday, Dec. 31, 2015, the yield on the 10-year muni stood at 1.92% and the 20-year muni was yielding 2.82%.
Treasuries were higher after the release of a stronger-than-expected jobs report. Non-farm payrolls rose 292,000 in December, after rising an upwardly revised 252,000 in November. Economists surveyed by Bloomberg had expected a 200,000 gain in payrolls last month.
The yield on the two-year Treasury fell to 0.94% from 0.96% on Thursday, while the 10-year Treasury yield dipped to 2.13% from 2.16% and the 30-year Treasury bond yield decreased to 2.92% from 2.93%.
The 10-year muni to Treasury ratio was calculated on Friday at 82.2% compared with 81.3% on Thursday, while the 30-year muni to Treasury ratio stood at 92.5% versus 91.9%, according to MMD.
Primary Market
Total volume for the coming week is estimated by Ipreo at $8.33 billion, consisting of $6.28 billion of negotiated deals and $2.06 billion of competitive sales. The total is up from a revised $1.73 billion sold in the past week, according to Thomson Reuters.
Most of the attention will be focused on the city of Chicago and the state of Illinois.
Market participants widely agree Chicago and Illinois will pay a steep premium for their fiscal woes and the negative headlines that draw market scrutiny, but both will benefit from their timing.
"It's a great time to be a distressed borrower" with supply falling short of investor demand, said Chicago-based Brian Battle, director of trading at Performance Trust Capital Partners.
The influx of Illinois paper isn't expected to hurt any of the deals as Chicago, Illinois and other higher-rated borrowers like the housing agency and Regional Transportation Authority slated to come to market are all distinct credits that have some variety in their buyer bases, several market participants said.
Chicago will be offering $500 million of general obligation debt. The issue will consist of $498.14 million of Series 2015C tax-exempt GO refunding bonds and $1.86 million of Series 2015D taxable GO refunding bonds. Citigroup is expected to price the bonds on Tuesday after holding a one-day retail order period on Monday.
The issue is rated triple-B-plus by Standard & Poor's and Fitch Ratings and A-minus by Kroll Bond Rating Agency.
Traders have seen Chicago bonds recently trading in the secondary at about 240 to 250 basis points over the triple-A 20-year maturity on the MMD scale.
On Thursday, Illinois will competitively sell $480 million of Series of 2016 GOs. The bonds are rated Baa1 by Moody's Investors Service, A-minus by S&P and triple-B-plus by Fitch.
On the higher-rated side, the Illinois Regional Transportation Authority on Wednesday will competitively sell $100 million of Series 2016A GOs. This issue is rated Aa3 by Moody's and AA by S&P and Fitch.
The Trinity Health Credit Group will be coming to market with a $568 million composite offering with bonds coming from four different issuers.
The deal consists of the Michigan Finance Authority's Series 2016MI hospital revenue and refunding bonds; the Connecticut Health and Educational Facilities Authority's Series 2016CT revenue bonds; the Idaho Health Facilities Authority's Series 2016D revenue bonds; and Montgomery County, Md.'s Series 2016MD revenue bonds.
The issue is expected to be priced by Bank of America Merrill Lynch on Tuesday after a one-day retail order period. The bonds are rated Aa2 by Moody's, AA-minus by S&P and AA by Fitch.
The California Health Facilities Financing Authority will be offering $500 million of Series 2016A revenue bonds for Sutter Health. The deal, which is rated Aa3 by Moody's and AA-minus by S&P and Fitch, is expected to be priced by Morgan Stanly on Wednesday.
The Week's Most Actively Quoted Issues
Puerto Rico, Massachusetts and New Jersey were among some of the most actively quoted names in the week ended Jan. 8, according to data released by Markit.
On the bid side, the Puerto Rico Commonwealth GO 8s of 2035 were quoted by 12 unique dealers. On the ask side, the Massachusetts State Transportation Fund revenue 5s of 2044 were quoted by 17 unique dealers. And among two-sided quotes, the New Jersey Tobacco Settlement Financing Corp. revenue 5s of 2041 were quoted by 17 dealers.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Jan. 8 were in California, New Jersey and Texas, according to Markit.
In the GO bond sector, the California 5s of 2026 traded 34 times. In the revenue bond sector, the New Jersey State Transportation Trust Fund Authority 5s of 2045 traded 46 times. And in the taxable bond sector, the University of Texas 3.852s of 2046 traded 21 times.
Municipal Bond Funds Report Inflows
Municipal bond funds reported inflows for the 14th straight week, according to Lipper data released on Thursday.
Weekly reporting funds said they had $992.749 million of inflows in the week ended Jan. 6, after inflows of $1.299 billion in the previous week, Lipper said.
The four-week moving average remained positive at $851.299 million after being in the green at $788.604 million in the previous week. 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 $496.862 million in the latest week, on top of inflows of $701.681 million in the previous week. Intermediate-term funds had inflows of $316.115 million after inflows of $421.495 million in the prior week.
National funds saw inflows of $924.675 million after inflows of $1.157 billion in the prior week. High-yield muni funds reported inflows of $307.597 million in the latest reporting week, after an inflow of $300.160 million the previous week.
Exchange traded funds saw inflows of $257.265 million, after inflows of $211.200 million in the previous week.
In the week ended Dec. 30, long-term, long-term municipal bond funds saw inflows, according to the Investment Company Institute. Muni funds saw $2.243 billion of inflows after $1,262 billion of inflows in the previous week, ICI reported.
