Munis firm ahead of $7.1B calendar

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Municipals were little changed on Friday ahead of the holiday-shortened trading week. Markets are closed Monday in observance of Labor Day.

Munis yields remained steady along most of the AAA GO scale as the day's trading action was focused on California and New York paper.

Primary market
IHS Ipreo estimates supply for the upcoming week at $7.1 billion. The calendar is composed of $5.3 billion of negotiated deals and $1.8 billion of competitive sales.

The biggest deal of the week will be coming out of Oregon when the state’s Department of Transportation issues $807 million of bonds.

The deal consists of $612.165 million of Series 2020B (Aa1/AAA/AA+/NR) taxable highway user tax revenue bonds and $195.045 million of Series 2020A (Aa2/AA+/AA+/NR) tax-exempt highway user tax revenue subordinate-lien bonds. Morgan Stanley is expected to price the deal on Thursday.

Also in the transportation sector, the Texas Private Activity Bond Surface Transportation Corp. (Baa2/NR/BBB-/NR) is selling $578.095 million of senior lien revenue refunding bonds for the LBJ Infrastructure Group LLC’s I-635 managed lanes project.

BofA Securities is set to price the Series 2020A private activity bonds not subject to the alternative minimum tax and Series 2020B taxables on Thursday.

The state Building Authority of Michigan (Aa2/NR/AA-/NR) is coming to market with $768 million of revenue and revenue refunding bonds.

The issue is made up of $560.475 million of taxable Series II facilities program revenue refunding bonds and $207.68 million of tax-exempt Series I facilities program revenue refunding bonds. Jefferies is expected to price the deal on Thursday.

In the competitive space, the Washington Suburban Sanitation District, Md., is selling $324.795 million of consolidated public improvement bonds of 2020 and Second Series consolidated public improvement green bonds of 2020.

“WashTubs — that’s a good high-grade issue,” said John Hallacy, founder of John Hallacy Consulting LLC. “It should be a good test of the market. They should probably stay pretty solid.”

This week’s sale of California general obligation bonds will save taxpayers $567.8 million over the next 20 years, or $503.8 million on a present value basis, according to the State Treasurer’s office.

"The markets have come a long way since the beginning of the pandemic," says Calif. Treasurer Fiona Ma.

California sold $2.6 billion of tax-exempt GO, which included $984 million of new-money bonds and $1.65 billion of refunding GOs. The all-in true interest cost to the state was 2.07%.

The refunding bonds will refinance debt issued in 2003, 2010, 2012 and 2013. Proceeds of the new money bonds will fund projects for K-12 school districts and will pay down certain outstanding commercial paper notes.

“The markets have come a long way since the beginning of the pandemic in March,” Treasurer Fiona Ma said. “Despite the sobering economic news that has come since then, I am pleased that investors still show confidence in the Golden State’s bonds."

The joint senior managers for the sale were Morgan Stanley and Ramirez & Co. The co-senior manager was Loop Capital Markets along with a large syndicate of co-managers and selling group members.

"The combination of that [investor] confidence and the tailwinds of low interest rates driven by the Federal Reserve’s policy will enable California’s taxpayers to reap benefits from this offering over many years in the future," Ma said.

The state will be in the market again during the week of Oct. 18, when it expects to competitively sell $1.4 billion of various purpose GOs and GO refunding bonds.

"While the state definitely got its deal done, it did come at a price," a California trader said. "However, how can we not expect concessions at this point? The virus is sparing no issuer. Cal paper will likely continue to trade up given its size and importance in the market. I think Cal will rebound perhaps quicker than other issuers on the East Coast, New York in particular. We're not in the clear yet with this virus and every state and local government should be cautious. But investors in this market know the deep roots that places like Cal and New York have."

California 3s and 4s were reclaiming up to 10 to 16 basis points of new-issue concession seen on the week's upsized $2.6 million deal, according to Refinitiv MMD.

The $5 million+ California GO 4s of 2034-2039 were being crossed at 1.50% in 2034 versus new issuance at 1.62% and 2037s crossed at 1.67% versus 1.79% at new issuance, said Peter Franks, senior analyst at Refinitiv MMD. He said $5 million+ Cal 3s of 11/2050 were being purchased as strong as 2.28% versus new issuance at 2.44%.

In New York trades, $5 million+ NYC TFA 5s of 11/2029 were purchased at 1.10% (+36 basis points to interpolated) which is where bonds were trading on Thusday as well abd $2.8 million of NYC GO 5s of 8/2028 were sold at 1.18% (+56 basis points to interpolated) from a +58 basis points purchase Monday and certainly better than new issuance behind +60 basis points.

In other trades on Friday, Delaware GOs, 5s of 2022, traded at 0.17%. Georgia GOs, 5s of 2025 at 0.25%-0.24%. NYC TFAs, 5s of 2029 landed at 1.10% Friday while trading at 1.12%-1.10% Thursday. Fairfax County, Virginia GOs, 5s of 2031, traded at 0.92% and 0.93%-0.92% Thursday. Blocks of NYC TFAs, 4s of 2038, at 1.98% while priced at 1.81% in mid-August. Dallas waters, 4s of 2049, traded at 1.87%. Prosper, Texas, ISD 4s of 2050, traded at 1.75%-1.68%. Thursday they traded at 1.82%. Wednesday they traded at 1.77%. Originally sold in early August at 1.63%, which shows the correction that occurred at month's end.

Secondary market
High-grade municipals were little changed, according to Friday afternoon readings on Refinitiv MMD’s AAA benchmark scale.

Yields were slighly lower in 2021 and 2022. The yield on the 10-year muni was flat at 0.83% while the 30-year yield remained at 1.57%.

The ICE AAA municipal yield curve showed the 2021 maturity unchanged at 0.140% and the 2022 maturity steady at 0.150%; the 10-year maturity was flat at 0.795% and the 30-year was steady at 1.587%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.14%, the 2022 maturity at 0.15%, the 10-year muni at 0.80% and the 30-year gained at 1.55%.

The BVAL AAA curve showed the yield on the 2021 maturity at 0.13%, the 2022 maturity at 0.15%, the 10-year at 0.80% all unchanged and the 30-year at 1.58%, a basis point higher than Thursday.

Treasuries were stronger as stock prices traded lower.

The three-month Treasury note was yielding 0.114%, the 10-year Treasury was yielding 0.698% and the 30-year Treasury was yielding 1.448%.

In a major correction after the recent run-up, the Dow fell 1.44%, the S&P 500 decreased 1.97% and the Nasdaq lost 3.08%.

Bond Buyer indexes move higher
The weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, rose three basis points to 3.57% from 3.54% the week before.

The Bond Buyer's 20-bond GO Index of 20-year general obligation yields rose two basis points to 2.22% from 2.20% in the previous week.

The 11-bond GO Index of higher-grade 11-year GOs increased two basis points to 1.75% from 1.73%.

The Bond Buyer's Revenue Bond Index gained two basis points to 2.64% from 2.62%.

Lynne Funk contributed to this report.

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