Munis firm as supply starts to trickle in

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Municipal bonds were firm and little changed on Tuesday as new issue supply started to trickle into the market.

Primary market
RBC Capital Markets priced for retail the Rhode Island Housing and Mortgage Finance Corp.’s $105.375 million of homeownership opportunity bonds, consisting of Series 69A bonds subject to the alternative minimum tax, Series 69B non-AMT bonds and Series 69T taxable bonds.

The bonds are rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings

Raymond James & Associates priced the Memphis-Shelby County Airport Authority’s $119.62 million of Series 2018 airport revenue AMT bonds.

The deal is rated A by S&P and Fitch and A-plus by Kroll Bond Rating Agency.

Also on Tuesday, Citigroup set to price the city and county of Denver’s $300 million of Series 2018 dedicated tax revenue bonds.

The deal is rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch Ratings.

On Wednesday, Texas is selling $7.2 billion of Series 2018 tax and revenue anticipation notes.

The notes will cover uneven cash flow to the state’s 1,031 school districts over the course of the fiscal year that runs from Sept. 1 to Aug. 31. Texas is one of the largest issuers of the notes among states.

The financial advisor is George K. Baum and the bond counsel is Orrick Herrington.

The deal is rated SP1-plus by S&P Global Ratings, F1-plus by Fitch Ratings and K1-plus by Kroll Bond Rating Agency.

On Thursday, Massachusetts will sell $1.5 billion of general obligation revenue anticipation notes in three sales consisting of $500 million each of Series 2018A, Series 2018B and Series 2018C RANs.

The financial advisor is Public Resources Advisory Group and the bond counsel is Mintz Levin.

The deal is rated MIG1 by Moody’s, SP1-plus by S&P and F1-plus by Fitch.

Topping the bond slate, JPMorgan Securities is set to price Illinois’ $920 million of Series of September 2018AB GO refunding bonds on Wednesday.

Proceeds of the sale will be used to shed the state’s $600 million of floating rate paper and cover the $74 million cost of swaps that synthetically fixed the 2003 issue.

The deal is rated Baa3 by Moody’s, BBB-minus by S&P and BBB by Fitch.

Tuesday’s bond sales

Rhode Island
Click here for the housing retail pricing

Tennessee
Click here for the airport pricing

Bond Buyer 30-day visible supply at $9.2B
The Bond Buyer's 30-day visible supply calendar decreased $114.9 million to $9.196 billion for Tuesday. The total is comprised of $3.36 billion of competitive sales and $5.84 billion of negotiated deals.

Secondary market
Municipal bonds were mixed around unchanged on Tuesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the one- and two-year, 14- to 19-year and 29- and 30-year maturities, rose less than a basis point in the four- to 12-year and 22- to 25-year maturities and remained unchanged in the three-year, 13-year, 20- and 21-year and 26- to 28-year maturities.

High-grade munis were also little changed, with yields calculated on MBIS’ AAA scale falling less than one basis point in the one- to three-year, 14- to 16-year and 28- to 30-year maturities, rising less than a basis point in the five- to 13-year and 17- to 26-year maturities and remaining unchanged in the four-year and 27-year maturities.

Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation rising by as much as one basis point while the yield on 30-year muni maturity remained unchanged.

A modest softening and declining volume combined to create lackluster activity Tuesday morning, a New York trader said, suggesting that summer doldrums “are playing into the somewhat quiet tone” in the market. He described the new issue market as a roller coaster ride with volume up as high as $11 billion last week and down this week as $4.5 billion arrives.

“It would be nice if it would average out and we could have a set $8 billion a week versus these swings,” the trader said, adding the erratic volume confuses investors. “I think when people see volume flip-flopping it makes them wait for the next week until issuance is back up, but then we get a dead week,” he said. “This industry sees volume fluctuate, but not like these recent swings.”

Besides volume declining from last week’s highs, the trader said market technicals have not cooperated. “Things are obviously not as attractive as they were two weeks ago especially where rates are,” he said. He hinted a Treasury sell-off would help the municipal market gain some strength.

Meanwhile, he noted, this week’s negotiated calendar led by the $920 million Illinois revenue sale should be “interesting” given the state’s recent outlook change to stable by Moody’s in July.

Illinois general obligation bond spreads tightened on MMD to 12-month lows throughout the yield curve after Moody’s removed its negative outlook on the state. Spreads narrowed in secondary market trading to a range of 150 basis points to 153 basis points over the MMD’s top-rated benchmark spread compared to recent trading levels at 165 basis points, MMD reported on July 23. The trader said it will be “interesting to see how retail creeps back in” to participate in that credit.

The trader also pointed to the $240 million Denver city and county sale and the $160 million New York Triborough Bridge & Tunnel Authority revenue sale as attractive and eye-catching in the current market.

"It’s New York and we can always use paper,” he said of the Triborough authority deal. “I think they will get a good response simply because even though a lot of people don’t really have their minds around buying something at the end of summer, there’s not a lot of paper around,” and investors need to take advantage of strategic buying when the deals are available, the trader said. “If you don’t buy now, the next time around volume could disappear and you could miss out.”

Aside from the negotiated deals, some of the competitive deals on the calendar include a $200 million Miami Dade County Florida remarketing structured with serials from 2019 to 2046, as well as a $105 million Pennsylvania Higher Educational Facilities Authority revenue refunding maturing from 2019 to 2043.

Treasury bonds were weaker as stock prices rose on Tuesday.

On Monday, the 10-year muni-to-Treasury ratio was calculated at 86.2% while the 30-year muni-to-Treasury ratio stood at 100.7%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 38,144 trades on Monday on volume of $9.01 billion.

California, New York and Texas were the municipalities with the most trades, with Golden State taking 13.54% of the market, the Empire State taking 12.308% and the Lone Star State taking 10.641%.

Treasury sells $70B 4-week bills
The Treasury Department Tuesday auctioned $70 billion of four-week bills at a 1.910% high yield, a price of 99.851444.

The coupon equivalent was 1.939%. The bid-to-cover ratio was 2.80.

Tenders at the high rate were allotted 59.25%. The median rate was 1.880%. The low rate was 1.860%.

Gary Siegel contributed to this report.

Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Rhode Island Housing Denver City & County State of Texas State of California State of New York Commonwealth of Massachusetts State of Illinois
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