Top quality municipal bonds finished flat on Monday in quiet activity, traders said, as the market readied for a busy week, with more than $10 billion of new supply slated to hit the screens.
Primary Market
Municipal volume for this week consists of about $8.8 billion of negotiated deals and $1.3 billion of competitive sales.
The largest deal on the calendar is coming from the Los Angeles Unified School District. Citigroup is slated to price LAUSD's $1.23 billion of general obligation and refunding bonds on Tuesday. The deal is rated Aa2 by Moody's Investors Service, AAA by Fitch Ratings and AA-plus by Kroll Bond Rating Agency.
Barclays Capital is set to price the California Statewide Communities Development Authority's $282.74 million of Series 2016 student housing refunding revue bonds for the UC Irvine Campus Apartments on Tuesday. The deal is rated Baa1 by Moody's Investors Service.
Barclays is also expected to price the New York's Utility Debt Securitization Authority's $381.73 million of Series 2016A tax-exempt restructuring bonds on Tuesday. The deal is rated triple-A by Moody's, S&P and Fitch.
Citi will price the New York City Municipal Water Authority's $335 million of water and sewer system second general resolution revenue bonds on Tuesday. The deal is rated Aa1 by Moody's, AAA by S&P and AA-plus by Fitch.
Citi will also price the Kentucky State Property and Buildings Commission's $668 million of Project No. 112 revenue bonds on Tuesday. The deal is rated Aa3 by Moody's, A by S&P and A-plus by Fitch.
In the competitive arena on Tuesday, Delaware will be selling three issues totaling $262.55 million, consisting of $164.84 million of Series 2016A GOs, $77.31 million of Series 2016C GO refunding bonds and $20.40 million of Series 2016B AMT GOs. All three sales are rated triple-A by Moody's, S&P and Fitch.
Secondary Market
The yield on the 10-year benchmark muni general obligation was steady from 1.76% on Friday, while the 30-year muni yield was unchanged from 2.80%, according to the final read of Municipal Market Data's triple-A scale.
Treasuries were higher on Monday. The yield on the two-year Treasury declined to 0.79% from 0.80% on Friday, while the 10-year Treasury yield dropped to 1.74% from 1.77% and the 30-year Treasury bond yield decreased to 2.62% from 2.64%.
The 10-year muni to Treasury ratio was calculated on Monday at 101.3% compared to 99.8% on Friday, while the 30-year muni to Treasury ratio stood at 107.1% versus 106.2%, according to MMD.
Last Week's Most Actively Traded Issues
Revenue bonds comprised 50.72% of new issuance in the week ended Feb. 26, down from 52.98% in the previous week, according to Markit. General obligation bonds comprised 41.06% of total issuance, up from 40.06%, while taxable bonds made up 8.22%, up from 6.96%.
Some of the most actively traded issues by type in the week ended Feb. 26 were in New York, Alabama and Florida.
In the GO bond sector, the New York City 3s of 2034 traded 58 times. In the revenue bond sector, the Lower Alabama Gas District 5s of 2046 traded 84 times. And in the taxable bond sector, the Florida Administrative Finance Corp. 2.163s of 2019 traded 82 times, according to
Muni Demand Remains Strong Despite Low Yields
Yields on municipal bonds have fallen to almost 50-year lows only months after the Federal Reserve raised interest rates for the first time in almost a decade.
"Investors that have been sitting in cash waiting for higher muni yields must have been sorely disappointed," Seix Investment Advisors said in a report released on Monday.
"As we have repeatedly stated over the past few years, we continue to believe long-term rates will remain lower for longer, and we remain constructive on the municipal sector because of its tax-exempt income, strong technical factors, healthy fundamentals, and compelling yields compared to global fixed-income rates," Seix said.
"While U.S. interest rates are low, they remain attractive compared to global fixed-income rates, particularly compared to the central banks of four developed countries and the Eurozone that are employing negative-interest rate policies. In fact, municipal yields are near their highest levels in 20 years compared to European government debt," the report said.
Despite the decrease in yields, SEIX said that demand for munis has remained strong. Munis are up 1.6% so far this year even after ending 2015 as the best performing fixed-income class, the report said.
