Top-quality municipal bonds finished stronger on Monday, according to traders, ahead of this week's $8.7 billion new issue slate.
Secondary Market
The 10-year benchmark muni general obligation yield fell one basis point to 2.23% from 2.24% on Friday, while the yield on the 30-year GO dropped two basis points to 2.98% from 3.00%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were stronger on Monday. The yield on the two-year Treasury dipped to 1.19% from 1.21% on Friday, while the 10-year Treasury yield dropped to 2.37% from 2.42%, and the yield on the 30-year Treasury bond decreased to 2.97% from 3.00%.
Prior Week's Actively Traded Issues
Revenue bonds comprised 58.87% of new issuance in the week ended Jan. 6, down from 59.03% in the previous week,
Some of the most actively traded issues by type were from New York and California.
In the GO bond sector, the New York City 4s of 2043 were traded 16 times. In the revenue bond sector, the Metropolitan Water District of Southern California 5s of 2037 were traded 26 times. And in the taxable bond sector, the California 7.6s of 2040 were traded 19 times.
Previous Week's Top Underwriters
The top negotiated and competitive underwriters of last week included Wells Fargo Securities, Barclays Capital, RBC Capital Markets, JPMorgan Securities and Piper Jaffray, according to Thomson Reuters data.
In the week of Jan. 1 to Jan. 7, Wells Fargo underwrote $956.7 million, Barclays $589.9 million, RBC $473.9 million, JPMorgan $391.2 million and Piper Jaffray $381.2 million.
Primary Market
This week's calendar is made up of about $6.7 billion of negotiated deals and around $2 billion of competitive sales, with action set to get underway on Tuesday.
In the competitive arena, Washington state is set to sell $626 million of bonds in three separate offerings on Tuesday.
The deals are comprised of $437.42 million of Series 2017D various purpose general obligation bonds, $139.02 million of Series R-2017C various purpose GO refunding bonds, and $49.97 million of Series 2017E and Series R-2017D state motor vehicle fuel tax GOs and refunding GOs. All three deals are rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
The Alpine School District Board of Education, Utah, is competitively selling $150.43 million of Series 2017 GO school building and refunding bonds under the Utah school bond guaranty program on Tuesday. The deal is rated triple-A by Moody's and Fitch.
Hennepin County, Minn., is competitively selling $119.98 million of Series 2017A first lien sales tax revenue refunding bonds on Tuesday. The deal is rated triple-A by S&P and Fitch.
In the negotiated arena, Citigroup is set to price the Board of Regents of the Texas A&M University System's $389 million of Series 2017A taxable revenue financing system bonds on Tuesday. The deal is rated triple-A by Moody's, S&P and Fitch.
Goldman Sachs is expected to price the Trinity Health Credit Group's $333.87 million composite bond on Tuesday, from conduit issuers in states with Trinity facilities. The deal is being sold through the Michigan Finance Authority, the Maryland Health and Higher Educational Facilities Authority, the Idaho Health Facilities Authority, and Franklin County, Ohio.
The offering is rated Aa3 by Moody's and AA-minus by S&P and Fitch.
Loop Capital Markets is set to price the Chicago Transit Authority's $293.47 million of Series 2017 second lien sales tax receipts revenue bonds on Tuesday. The deal is rated A-plus by S&P and AA-minus by Kroll Bond Rating Agency.
RBC Capital Markets is expected to price the Pennsylvania Housing Finance Agency's $239.65 million of Series 2017-122 single-family mortgage revenue bonds, not subject to the alternative minimum tax, on Tuesday. The deal is rated Aa2 by Moody's and AA-plus by S&P.
RBC is also expected to price the Aurora Public Schools, Joint School District No. 28J in Adams and Arapahoe Counties, Colo., Series 2017A GOs and Series 2017B GOs. The deal, backed by the Colorado state intercept program, is rated Aa2 by Moody's and AA by Fitch.
Morgan Stanley: Risk Rising for Hospital Bonds
Political and regulatory policy risk looks to be on the rise for hospital bonds while falling for those of utilities, according to a market comment released Monday by Morgan Stanley.
"Although both sectors remain equal-weight portfolio allocations for us, we'd consider adding incremental credit risk in single-A and Baa regulated utilities (especially those with greater rate-setting flexibility), while paring back exposure to single-A and Baa hospitals on a duration-neutral basis."
President-elect Trump and the Republican Congress have pledged to roll back rules and regulations affecting healthcare and public utilities.
Congress could repeal some Affordable Care Act provisions as early as next month. Scott Pruitt, Trump's nominee to head the Environmental Protection Agency, is an opponent of the Clean Power Plan (CPP).
"Yet, although the result of both efforts would be the same – less regulation -- the market impact could differ meaningfully for each sector," Morgan Stanley wrote. "Rolling back Obamacare – without providing details on a replacement – stands to increase uncertainty for hospital revenues, as it raises long-term questions about how providers will be reimbursed (and who will reimburse them). Conversely, rolling back the [CPP] frees public power utilities from potentially onerous compliance costs."
Morgan Stanley said, however, that neither regulatory development would fully affect issuers in either sector for years, as any ACA repeal is likely to take time and the implementation for the CPP runs past 2020.
