Top quality municipal bonds finished steady on Thursday, traders said, with yields on all maturities remaining unchanged in light secondary activity.
In the primary market, several new deals of size were priced, led by sales in California, New York, Arizona and Texas.
Secondary Market
The yield on the 10-year benchmark muni general obligation was unchanged at 1.71% from Tuesday, while the 30-year muni yield remained at 2.77%, according to the final read of Municipal Market Data's triple-A scale.
Treasuries were stronger on Thursday. The yield on the two-year Treasury slipped to 0.72% from 0.75% on Wednesday, while the 10-year Treasury yield fell to 1.70% from 1.74% and the 30-year Treasury bond yield decreased to 2.57% from 2.58%.
The 10-year muni to Treasury ratio was calculated on Thursday at 100.9% compared to 98.4% on Wednesday, while the 30-year muni to Treasury ratio stood at 107.7% versus 106.7%, according to MMD.
Primary Market
Citigroup priced California's Eastern Municipal Water District's $209.46 million of Series 2016A refunding water and wastewater revenue bonds.
The issue was priced to yield from 0.17% with a 2% coupon in 2016 to 2.82% with a 5% coupon in 2039; a 2042 maturity was priced as 5s to yield 2.89% and a 2045 maturity was priced as 5s to yield 2.92%.
The deal is rated Aa2 by Moody's Investors Service and AA by Standard & Poor's and Fitch Ratings.
Citi also priced and repriced and restructured the Board of Regents of the University of Arizona System's $175.84 million of Series 2016 revenue refunding bonds.
The issue was repriced to yield from 0.75% with a 5% coupon in 2019 to 2.93% with a 5% coupon in 2039.
The deal is rated Aa2 by Moody's and AA-minus by S&P.
In the competitive sector, the New York City Municipal Water Finance Authority sold $196.59 million of Fiscal 2016 Series A water and sewer system revenue bonds.
Citi won the deal with a true interest cost of 3.15%. The issue was priced as 5s to yield 2.15% in 2028, as 4 1/2s to yield 2.53% in 2032 and as 3s to yield 3.20% in 2036.
The bonds are rated Aa1 by Moody's, triple-A by S&P and AA-plus by Fitch.
RBC Capital Market received the written award for the Maryland Economic Development Corp.'s $133.60 million of Series 2016 student housing refunding revenue bonds for the University of Maryland at College Park Projects.
The bonds were priced to yield from 0.61% with a 4% coupon in 2017 to 2.92% with a 5% coupon in 2031. The 2035 and 2043 maturities were priced as 5s to yield 3.12% and 3.43%, respectively.
The entire deal is backed by Assured Guaranty Municipal and is rated A2 by Moody's and AA by S&P.
BOSC priced the Allen Independent School District, Texas' $144.49 million of Series 2016 unlimited tax refunding bonds.
The issue was priced to yield from 0.51% with a 2% coupon in 2017 to 2.95% with a 5% coupon in 2040; a 2016 maturity was offered as a sealed bid.
The bonds are backed by the Permanent School Fund guarantee program and rated triple-A by Moody's and S&P.
BlackRock Sees Issuance Pickup, Year Ending with Net Positive Supply
The 18-20% year-over-year decline in supply so far in 2016 isn't a sign of what's to come for the rest of the year, Peter Hayes, BlackRock's managing director and head of municipal bonds, said at the firm's muni roundtable.
"We except to finish the year net positive, but we have seen fairly low issuance so far this year and that has led to good returns," Hayes said.
"The demand seems to be sustainable and we believe supply is likely to pick up, especially given the fact that rates are so low and issuers should really be coming to market," he added.
Sean Carney, BlackRock's director and head of municipal strategy, said supply in 2016 has been both predicable and underwhelming, but at the same time it has added to the strong technical support for munis, as demand has been able to outpace supply for a significant period of time.
"Right now we are transitioning out of a net negative period in January and February into a very high net positive period of March, April and May," said Carney. "Demand continues to be very robust in our marketplace, in not only what is measured like mutual fund flows but also anecdotally in the [separately managed account] business and [exchange traded funds], there is very solid demand across the curve as well."
Carney said long-term funds have gotten the bulk of the new funds that have come in to the industry, though intermediate-term and high-yield funds have been battling very closely for second.
"We subscribe to a theory that 1% of municipal performance brings in approximately $3 billion in new-money via fund flows," he said. "Last year, 1% equaled $4 billion and thus far in 2016, 1% is equaling $5 billion, so there is very, very strong demand for the asset class."
So why aren't we seeing a pickup in issuance, in particular advanced refundings? Carney said that although there are opportunities for advanced refundings out there, one reason is that issuers aren't concerned that rates will surge higher.
Tax-Exempt Money Market Funds Post Inflows
Tax-exempt money market funds experienced inflows of $619.9 million, bringing total net assets to $243.46 billion in the week ended Feb. 22, according to The Money Fund Report, a service of iMoneyNet.com. This followed an outflow of $3.40 billion to $242.84 billion in the previous week.
The average, seven-day simple yield for the 354 weekly reporting tax-exempt funds remained at 0.01% for the 147th straight week.
The total net assets of the 945 weekly reporting taxable money funds increased $34.79 billion to $2.556 trillion in the week ended Feb. 23, after an inflow of $3.30 billion to $2.521 trillion in the prior week.
The average, seven-day simple yield for the taxable money funds remained at 0.10% for the third week in a row.
Overall, the combined total net assets of the 1,299 weekly reporting money funds rose $35.41 billion to $2.799 trillion in the period ended Feb. 23, which followed an outflow of $96.7 million to $2.764 trillion.
