Munis continued their post-election swoon Monday, with yields on some maturities surging as many as 22 basis points higher, according to traders. Weekly volume was estimated at $11.5 billion, though some traders said the volatility may delay some deals.
Secondary Market
The yield on the 10-year benchmark muni general obligation jumped 22 basis points to 2.16% from 1.94% on Thursday, while the yield on the 30-year increased 22 basis points to 2.98% from 2.76%, according to a final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker at the close on Monday. The yield on the two-year rose to 0.99% from 0.90% on Thursday, the 10-year Treasury jumped to 2.23% from 2.11% and the yield on the 30-year Treasury bond increased to 2.99% from 2.92%.
The 10-year muni to Treasury ratio was calculated at 91.2% on Monday compared to 91.7% on Thursday, while the 30-year muni to Treasury ratio stood at 99.9% versus 94.3%, according to MMD.
Primary Market
This week's calendar consists of $8.9 billion of negotiated deals and $2.7 billion of competitive sales. The issuance will start flowing into the market starting on Tuesday.
"The market was caught offsides today by a continued downdraft in Treasuries and because volume was light last week, munis were 'richer' coming into the week," said a New York trader.
The trader said while fund flows were positive last week, it appears that funds are either seeing redemptions or are anticipating them, because they have put out a record number of bonds for the bid today, in what looks like "capitulation".
Still, "the muni market could see cautious but decent demand for the new issues," said the trader. "They will be priced to sell, which will mean wider spreads, but my gut tells me buyers will be there at appropriately adjusted levels."
The volatility has already prompted the Chicago Public Schools to postpone its deal that was scheduled for this week.
"Until the muni market can find some footing, underwriters will likely hold back pricing negotiated deals and it will be curious if major competitive sales will occur on Tuesday," said Randy Smolik, senior market analyst at MMD.
Topping the new issue calendar is the TSASC Inc.'s $1.02 billion tobacco settlement bond deal. Jefferies is expected to price the New York deal for retail investors on Tuesday followed by the institutional pricing on Wednesday.
The issue will consist of $584.39 million of Fiscal 2017 Series A Senior bonds and $440 million of Fiscal 2017 Series B Subordinate bonds. Proceeds will primarily be used to refund TSASC's outstanding bonds.
TSASC is a local development corporation that issues debt secured by tobacco settlement revenues, which cigarette companies pay as part of the 1998 master settlement agreement with 46 states.
According to the preliminary official statement, S&P Global Ratings is expected to assign ratings for different maturities in the issue ranging from A and A-minus to BBB-plus for some of the senior bonds and BBB for some maturities of the subordinate bonds.
RBC Capital Markets is set to price the Los Angeles Department of Airports' $661.88 million of Series 2016B subordinate revenue bonds, subject to the alternative minimum tax, Series 2016C taxable senior refunding revenue bonds on Tuesday. The Series 2016B bonds are rated A1 by Moody's and AA-minus by S&P and Fitch and the Series 2016C bonds are rated Aa3 by Moody's Investors Service and AA by S&P Global Ratings and Fitch Ratings.
Bank of America Merrill Lynch is expected to price the Los Angeles County Metropolitan Transportation Authority's $515 million of Series 2016A Measure R senior sales tax revenue bonds on Tuesday. The deal is rated Aa1 by Moody's.
In the competitive arena, the Washington Suburban Sanitary District, Md., is selling $381.81 million of consolidated public improvement bonds of 2016, Second Series. The sale is rated triple-A by Moody's, S&P and Fitch.
Prior Week's Actively Traded Issues
Revenue bonds comprised 58.86% of new issuance in the week ended Nov. 10, up from 58.00% in the previous week,
Some of the most actively traded issues by type were from Puerto Rico, Illinois and Florida. In the GO bond sector, the Puerto Rico Commonwealth 5s of 2041 were traded 21 times. In the revenue bond sector, Chicago O'Hare International Airport 5s of 2041 were traded 42 times. And in the taxable bond sector, the Sumter Landing Community Development District, Fla., 4.172s of 2047 were traded 37 times.
Previous Week's Top Underwriters
The top negotiated and competitive underwriters of last week included Bank of America Merrill Lynch, JPMorgan, Morgan Stanley, RBC Capital Markets and Mesirow Financial, according to Thomson Reuters data. In the week of Nov. 6-Nov. 12, BAML underwrote $672 million, JPM $475 million, Morgan Stanley $233.7 million, RBC $196 million and Mesirow $170 million.
