Top quality municipal bonds were steady to weaker on Monday, according to traders, who were preparing for another healthy slate of new issues come to market.
Secondary Market
The yield on the 10-year benchmark muni general obligation was steady from 1.65% on Friday while the 30-year muni yield increased by one basis point to 2.61% from 2.60%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Monday. The yield on the two-year Treasury increased to 0.83% from 0.82% on Friday, while the 10-year Treasury yield rose to 1.90% from 1.88% and the yield on the 30-year Treasury bond gained to 2.72% from 2.71%.
The 10-year muni to Treasury ratio was calculated at 86.8% on Monday compared with 87.6% on Friday, while the 30-year muni to Treasury ratio stood at 95.8% versus 96.3%, according to MMD.
Previous Week's Actively Traded Issues
Revenue bonds comprised 53.59% of new issuance in the week ended April 22, up from 53.23% in the previous week, according to Markit. General obligation bonds comprised 39.88% of total issuance, down from 40.04%, while taxable bonds made up 6.53%, down from 6.72%.
Some of the most actively traded issues by type were from Massachusetts, Indiana and Nevada.
In the GO bond sector, the Massachusetts Water Resources Authority 4s of 2040 traded 65 times. In the revenue bond sector, the Indiana Finance Authority 6s of 2039 traded 63 times. And in the taxable bond sector, the North Las Vegas, Nev., 6.572s of 2040 traded 19 times.
Primary Market
Total new issue volume is estimated $7.98 billion for the week, divided into $6.35 billion of negotiated deals and $1.63 billion of competitive sales.
Most of the big new issue action is set to get underway on Tuesday when Morgan Stanley prices Ascension Health Alliance's $1.1 billion deal.
The fixed-rate part of the sale is slated to sell on Tuesday through the Wisconsin Health & Educational Facilities Authority, the Alabama Special Care Facilities Authority of Birmingham, the Alabama Special Care Facilities Authority of Mobile, and the Michigan Finance Authority.
The system is also selling $250 million of taxable bonds as soon as Tuesday. The overall deal includes $575 million of variable-rate issuance, which will be sold by the Wisconsin and Michigan authorities, some on Tuesday and some on the following week.
Ahead of the sale, Moody's Investors Service affirmed the system's Aa2 rating and Standard & Poor's and Fitch Ratings affirmed their AA-plus ratings on the system's post-issuance debt load of $6.8 billion.
On Monday, JPMorgan Securities priced a healthcare issue for St. Cloud, Minn. The $192.53 million of Series 2016A healthcare revenue bonds were sold for the Centracare Health System.
The issue was priced as 5s to yield 1.28% in 2021 and as 5s to yield from 2.15% in 2026 to 2.66% in 2031; a 2032 maturity was priced as 3s to yield 3.13%, a 2037 maturity was priced as 4s to yield 3.28%, a 2039 maturity was priced as 3 1/4s to yield 3.47% and a 2046 maturity was priced as 5s to yield 3.09%. The bonds are rated A1 by Moody's and A-plus by S&P.
On Tuesday, Bank of America Merrill Lynch is set to price the California Statewide Communities Development Authority's $883 million of Series 2016A revenue bonds for the Loma Linda University Medical Center. The deal is rated BB by S&P and BB-plus by Fitch.
Roosevelt & Cross is expected to price the Hudson County Improvement Authority, N.J.'s $160 million of Series 2016C current interest and capital appreciation bonds, on Tuesday.
Piper Jaffray is set to price Ohlone Community College District, Calif.'s $155 million of GOs on Tuesday.
In the competitive arena on Tuesday, Miami-Dade County, Fla., will sell $350 million of Series 2016A general obligation refunding bonds under the Better Communities Program. The sale, which was postponed from the previous week, is rated Aa2 by Moody's and AA by S&P.
Also on Tuesday, the Illinois Regional Transportation Authority will competitively sell $150 million of Series 2016C taxable GO working cash notes. The deal is rated AA by Fitch.
The Horry County School District, S.C. will competitively sell $125 million of Series 2016 GOs on Tuesday. The bonds are rated Aa1 by Moody's and AA by S&P.
Ramirez: Net Supply Remains Negative
Municipal bonds outperformed Treasuries last week, Peter L. Block, Managing Director at Ramirez & Co., wrote in a Monday market comment. "Both markets took a beating due to inflation fears and potential FOMC rate increases later this summer," Block said.
He cited longer Treasuries as seeing the most volatility, "with 30-year Treasuries off 12 basis points, but more subdued in munis, with the 15-year to 30-year triple-A spots off by only six to seven basis points due to continued strong demand and negative net supply."
So far this year gross supply is at $121 billion, Ramirez said, on track to meet or exceed his forecast of $378 billion of gross supply for 2016.
"Net supply continues to be negative at -$8 billion over the next 30 days, continuing the year to date trend," Block wrote. "Of the 10 states with the most outstanding debt, Pennsylvania stands to shrink the most (-0.8%), followed by Massachusetts (-0.8%), California (-0.4%), and Ohio (-0.3%). Conversely, Texas is set to expand the most (+0.04%)."
