Top-quality municipal bonds were unchanged at mid-session, traders said, as the Federal Reserve prepares to begin its two-day monetary policy meeting.
Secondary Trading
The yield on the 10-year benchmark muni general obligation was flat from 2.36% on Monday, while the yield on the 30-year was unchanged from 3.17%, according to a read of Municipal Market Data's triple-A scale.
U.S. Treasuries were mixed on Tuesday. The yield on the two-year Treasury rose to 1.16% from 1.14% on Monday, the 10-year Treasury was unchanged from 2.48%, while the yield on the 30-year Treasury bond decreased to 3.16% from 3.17%.
On Monday, the 10-year muni to Treasury ratio was calculated at 95.3% compared to 93.8% on Thursday while the 30-year muni to Treasury ratio stood at 100.3% versus 98.8%, according to MMD.
MSRB: Previous Session's Activity
The Municipal Securities Rulemaking Board reported 48,377 trades on Monday on volume of $10.34 billion.
BAML on Defaults, Bankruptcies: Muni Credit Strong
Municipal credit remains strong with Puerto Rico remaining the outlier, according to a report released on Monday by Bank of America Merrill Lynch Global Research.
Munis are showing no contagion from Puerto Rico so far this year, the report said, noting that as of Dec. 5, $27.23 billion in total outstanding par value of muni bonds entered into debt service payment default for the first time ($1.76 billion excluding Puerto Rico) versus $2.25 billion in full year 2015.
"Muni bonds in monetary default represent approximately 0.71% of total munis outstanding, compared with 0.0607% for the full-year 2015. Excluding Puerto Rico, the year-to-date default number is only $1.76 billion," Celena Chan, BAML municipal research strategist, wrote in the report. "As a whole, the Puerto Rican issuers account for almost all of the defaults year-to-date."
The breakdown of defaults for the year-to-date shows general obligation, general and facilities sectors accounted for a majority of the defaults. This was followed by defaults in the development (7.74%) and transportation (5.55%) sectors, the report stated.
"Analyzing defaults by state shows that Puerto Rico accounted for 93.54% of the total, followed by Illinois (1.46%) and Louisiana (1.09%)," Chan wrote.
Bankruptcy filings have been limited in 2016, according to the report.
"Since our last report [Sept. 23], there have been three new Chapter 9 filings: Pushmataha County -- City of Antlers Hospital Authority in Oklahoma filed [on Sept. 23]; West Contra Costa Healthcare District in California filed [on Oct. 20]; and, the Sanitary and Improvement District No. 476 in Douglas County, Nebraska filed [on Dec. 8]," Chan wrote. "Year-to-date, there have been six filings."
Primary Market
The week's calendar is estimated at a smaller-than usual $4.01 billion, with the market remaining cautious ahead of the Federal Open Market Committee's announcement on interest rates on Wednesday.
On Tuesday, Morgan Stanley priced the Pennsylvania Higher Educational Facilities Authority's $178.59 million of Series 2017A revenue bonds as trustee for the University of Pennsylvania.
The issue was priced as 5s to yield from 2.28% in 2024 to 3.25% in 2036; a 2041 maturity was priced as 4s to yield 3.72% and a 2046 maturity was priced as 5s to yield 3.42%.
The deal is rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings.
In the competitive arena on Tuesday, the Minneapolis Special School District No. 1, Minn., sold about $125 million of bonds backed by the state's school district credit enhancement program in three separate offerings.
Raymond James & Associates won the $56.09 million of Series 2016B general obligation long-term maintenance bonds with a true interest cost of 3.2056%; Raymond James also won the $45.43 million of Series 2016A GO school building bonds with a TIC of 3.0998%. Piper Jaffray won the $23.77 million of Series 2016C full term certificates of participation with a TIC of 3.0594%.
All three deals are rated Aa1 by Moody's and AA-plus by S&P and Fitch Ratings.
On Wednesday, the Douglas County School District, Omaha Public, Neb., will competitively sell $141 million of Series 2016 general obligation bonds. The deal is rated Aa1 by Moody's and AAA by S&P.
Since 2009, the school district has sold about $538.9 million of debt, with the most issuance prior to this year occurring in 2015 when it also sold $141 million of bonds. The district did not come to market in 2011 or 2013.
Also this week, Barclays Capital is expected to price the Chicago Board of Education's $500 million of dedicated capital improvement tax bonds. There is no exact date for the sale, as the timing on the deal depends on market conditions. The bonds are rated A by Fitch and BBB by Kroll Bond Rating Agency.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $177.6 million to $9.24 billion on Tuesday. The total is comprised of $1.89 billion of competitive sales and $7.35 billion of negotiated deals.
Municipal CUSIP Requests Fall 10% in Nov.
Demand for new municipal CUSIP identifiers fell 10% in November after rising 7% in October, CUSIP Global Services said in a report released on Tuesday. The report tracks requests by issuers for bond identifiers as an early indicator of new volume.
A total of 1,231 new municipal bond identifier requests were made last month, down from 1,368 in October. Long-term muni CUSIP order volume fell to 20 last month from 30 in October while short-term requests rose to 86 in November from 77 in the previous month.
On a year-over-year basis, CUSIP requests for new muni bond identifiers were up 8% through November.
"The combination of a holiday-shortened month and a great deal of uncertainty around the U.S. presidential election clearly had an impact on CUSIP request volume during the month of November," Gerard Faulkner, director of operations for CUSIP Global Services, said in a press release. "That will make December's volume even more critical to watch as we look for signals for what might be in store for capital markets in 2017."
Richard Peterson, Senior Director, S&P Global Market Intelligence, agreed.
"While the election and calendar played a role in this month's request volume, the consistent upward march of interest rates will be the key variable to watch in next month's data set," Peterson said in the release. "Yields on the 10-year U.S. Treasury reached a 16 month high during the month of November; if that trend continues it will surely impact new issuance volume."
