Municipal bonds were stronger on Monday, traders said, with yields on top-rated maturities falling by as much as six basis points. Treasuries surged in a flight-to-quality as U.S. equities plunged after a stock market meltdown in China.
The yield on the 10-year benchmark muni general obligation fell six basis points to 1.87%, while the 30-year yield dropped six basis points to 2.77%, according to the final read of Municipal Market Data's triple-A scale, which took into account the January roll conversion.
U.S. Treasuries were higher in late trading. The yield on the two-year Treasury fell to 1.03% from 1.06% on Thursday, while the 10-year Treasury yield dropped to 2.23% from 2.29% and the 30-year Treasury bond yield decreased to 2.98% from 3.03%.
The Shanghai Composite Index plunged almost 7% before newly installed circuit breakers kicked in to halt trading. U.S. stocks took note and followed suit, moving sharply lower. In late trade, the Dow Jones Industrial Average was off about 400 points while the Nasdaq Composite Index lost around 140 points and the S&P 500 Index was down nearly 50 points.
The 10-year muni to Treasury ratio was calculated on Monday at 83.5% compared with 84.4% on Thursday, while the 30-year muni to Treasury ratio stood at 92.8% versus 93.5%, according to MMD.
Puerto Rico Bonds Trading Mostly Higher
Puerto Rico was set to default on about $37 million of debt payments, due on Monday. The Commonwealth defaults on a $35.9 million Puerto Rico Infrastructure Financing Authority payment and a $1.4 million Puerto Rico Public Finance Corp. payment, Gov. Alejandro Garcia Padilla said last week. Puerto Rico, however, will make other payments, including a $329 million payout on its guaranteed general obligation bonds.
In secondary trading on Monday, the benchmark Puerto Rico Commonwealth Series 2014A GO 8s of 2035 were trading higher, according to the Municipal Securities Rulemaking Board's EMMA website. The GO 8s of 2035 were trading at 73.75 cents on the dollar to yield 11.377% in 10 trades totaling $29 million. Last Wednesday, the 8s were trading at a high price of 73 cents on the dollar, a low yield of 11.501%, in three trades totaling $7.25 million.
The Commonwealth's Series 2009C GO public improvement refunding bonds were also trading higher. The GO 6s of 2039 were trading at a high price of 64.50 cents on the dollar, a low yield of 9.928%, in 17 trades totaling $1.02 million. Last Thursday, the 6s of 2039 were trading at a high price of 62, a low yield of 10.333%, in six trades totaling $155,000, according to EMMA.
The Commonwealth's Series 2011 GO public improvement bonds were trading little changed. The 5 3/4s of 2041 were trading at a high price of 65.50 cents on the dollar, a low yield of 9.313%, in 20 trades totaling $5.72 million. Last Thursday, the 5s of 2041 were trading at a high price of 65.50, a low yield of 9.313%, in five trades totaling $1.98 million.
The Puerto Rico Industrial, Tourist, Educational, Medical, and Environmental Control Facilities Financing Authority's Series 2000A educational facilities revenue bonds were also up. The AFICA 5s of 2033 were trading at a high price of 92.837 cents on the dollar, a low yield of 5.65%, in 12 trades totaling $1.02 million. Last Tuesday, the 5s of 2033 were trading at a high price of 90.625, a low yield of 6.026%, in three trades totaling $90,000, according to EMMA.
Last Week's Most Active Sectors
Revenue bonds comprised 54.71% of new issuance in the week ended Dec. 31, down from 55.11% in the previous week, according to Markit. General obligation bonds comprised 37.60% of total issuance, up from 36.72%, while taxable bonds made up 7.68%, down from 8.17%.
Some of the most actively traded issues by type were in Minnesota, California and Florida.
In the GO bond sector, the Minnesota 4s of 2030 traded 22 times. In the revenue bond sector, the Imperial Irrigation District, Calif., 3 1/8s of 2035 traded 26 times. And in the taxable bond sector, the Hollywood Beach Community Development District, Fla. 6 1/4s of 2045 traded eight times, according to Markit.
Primary Market
The market comes back to life this week as total volume is estimated by Ipreo at $3.33 billion. The calendar consists of $2.86 billion of negotiated deals and $472.8 million of competitive sales.
On the negotiated slate, the Board of Regents of the University of Texas will be coming to market will two deals totaling $450 million.
Bank of America Merrill Lynch is set to price the $250 million of Series 2016A taxable revenue financing system bonds and the $200 million of Series 2016B revenue financing system green bonds on Thursday.
Both series are rated triple-A by Moody's Investors Service, Standard & Poor's and Fitch Ratings.
Also on the negotiated calendar, BAML is expected to price the South Carolina Public Service Authority's $382 million of revenue obligation Series 2016A tax-exempt refunding bonds on Thursday.
Stifel is set to price Orange County, Calif.'s $334.31 million of taxable Series 2016A pension obligation bonds on Thursday. The issue is rated AA by S&P and Fitch.
And JPMorgan Securities is set to price on Thursday the KU Central Development Corp.'s $333.18 million of Series 2016 lease revenue bonds, which are being issued through the Wisconsin Public Finance Authority. The issue is rated Aa2 by Moody's.
Proceeds from the University of Kansas offering will fund an expansion of its Lawrence campus using a new public-private partnership model.
In the competitive arena, the Massachusetts School Building Authority will sell $150 million of Series 2016A senior dedicated sales tax bonds on Wednesday. The deal is rated Aa2 by Moody's and AA-plus by S&P and Fitch.
On the short-term slate, Colorado will sell by competitive bid $339 million of Series 2015B education loan program tax and revenue anticipation notes. The TRANS are due June 29.
Municipal Bond Funds See Inflows
Municipal bond funds ended the year on a strong note, seeing inflows for the 13th straight week, according to Lipper data released late Thursday.
Weekly reporting funds saw $1.30 billion of inflows in the week ended Dec. 30, after inflows of $809.476 million in the previous week, Lipper said.
The four-week moving average remained positive at $788.604 million after being in the green at $554.747 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 $701.681 million in the latest week, on top of inflows of $529.995 million in the previous week. Intermediate-term funds had inflows of $421.495 million after inflows of $288.196 million in the prior week.
National funds saw inflows of $1.16 billion after inflows of $779.774 million in the prior week. High-yield muni funds reported inflows of $300.160 million in the latest reporting week, after an inflow of $291.366 million the previous week.
Exchange traded funds saw inflows of $211.200 million, after inflows of $31.351 million in the previous week.
In the week ended Dec. 22, long-term, long-term municipal bond funds saw inflows, according to the Investment Company Institute. Muni funds saw $1.262 billion of inflows after $647 million of inflows in the previous week, ICI reported.
