Top-rated municipal bonds finished steady to stronger on Monday, according to traders, as the market looked ahead to what should be an exciting week with about $7.2 billion of new supply set to be sold.
The yield on the 10-year benchmark muni general obligation fell one basis point to 1.60% from 1.61% on Friday, while the 30-year muni yield was unchanged from 2.54%, according to the final read of the Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker in late trade. The yield on the two-year Treasury increased to 0.74% from 0.73% on Friday, while the 10-year Treasury yield rose to 1.77% from 1.75% and the yield on the 30-year Treasury bond gained to 2.59% from 2.56%.
The 10-year muni to Treasury ratio was calculated at 90.4% on Monday compared with 92.0% on Friday, while the 30-year muni to Treasury ratio stood at 98.3% versus 99.2%, according to MMD.
Previous Week's Actively Traded Issues
Revenue bonds comprised 53.23% of new issuance in the week ended April 15, down from 54.48% in the previous week, according to Markit. General obligation bonds comprised 40.04% of total issuance, up from 39.70%, while taxable bonds made up 6.73%, down from 5.82%.
Some of the most actively traded issues by type in the week ended April 15 were in Puerto Rico, California and Illinois.
In the GO bond sector, Puerto Rico commonwealth 8s of 2035 traded 52 times. In the revenue bond sector, University of California 5s of 2046 traded 82 times. And in the taxable bond sector, Illinois 5.1s of 2033 traded 22 times,
Primary Market
Some big names are set to come to market in the biggest week of supply since the week of March 11. About $7.19 billion of new volume is expected to hit screens this week, with the calendar broken down into $4.40 billion of negotiated deals and $2.79 billion of competitive sales.
The action got started on Monday as Bank of America Merrill Lynch priced the Dormitory Authority of the State of New York’s $131.66 million of Series 23016A revenue bonds for Cornell University.
The issue was priced to yield from 0.68% with a 5% coupon in 2018 to 2.30% with a 5% coupon in 2035; a 2017 maturity was offered as a sealed bid.
The DASNY deal was rated Aa1 by Moody’s Investors Service and AA by Standard & Poor’s.
Morgan Stanley priced the Fairfax County, Va., Industrial Development Authority’s $144.10 million of Series 2016A and 2016B healthcare revenue bonds for the Inova Health System.
The $112.65 million of Series 2016A bonds were priced to yield from 0.97% with a 5% coupon in 2020 to 2.30% with a 5% coupon in 2031. The $31.45 million of Series 2016B bonds were priced as 5s to yield 1.93% in a bullet 2026 maturity. The bonds are rated Aa2 by Moody’s and AA-plus by S&P.
On Tuesday, the state of California will sell three separate competitive sales totaling nearly $1.5 billion.
The largest of the trio will be $645.3 million of tax-exempt various purpose general obligation refunding bonds, followed by $606.7 million of tax-exempt various purpose GO refunding bonds and $236.8 million of taxable various purpose GO bonds. All three sales are rated Aa3 by Moody’s, AA-minus by S&P and A-plus by Fitch Ratings.
Also in the competitive arena, Fort Lauderdale, Fla., will sell $165.94 million of Series 2016 water and sewer revenue and revenue refunding bonds. The deal is rated Aa1 by Moody’s and AA-plus by S&P.
The city last competitively sold comparable bonds on Nov. 18, 2014, when Bank of America Merrill Lynch won $121.52 million of Series 2014 water and sewer revenue refunding bonds with a true interest cost of 3.18%.
In the negotiated sector, Bank of America Merrill Lynch is expected to price the Texas Transportation Commission’s $615 million of Series 2016 state highway improvement GOs on Tuesday. The deal is rated triple-A by Moody’s, S&P and Fitch and is the largest deal so far this year in the Lone Star State.
Proceeds from this issue will go toward capital projects, particularly those designed to relieve congestion in major urban areas.
Stifel is expected to price on Tuesday the Carmel, Ind.’s Local Public Improvement Bond Bank $224.12 million of multipurpose bonds.
The deal marks the first bond issuance from the city’s recently established bond bank. Proceeds will help finance new projects such as the design and construction of roundabout and other road infrastructure projects, stormwater and drainage improvements, and local redevelopment improvements. A portion of the lease rental bonds will refund outstanding debt.
BAML: Muni Performance Lagging in ’16
Municipal bonds are continuing to be outpaced by performance in both the U.S. Treasury and corporate bond sector in 2016, according to a new report from Bank of America Merrill Lynch.
BAML said that as of April 14 its Muni Master Index has returned 2.309% in 2016, underperforming both the Treasury Master Index and the U.S. Corporate IG Master Index, which had total returns of 5.212% and 4.528%, respectively.
The best performance in munis for the year-to-date has been in the 22-year+ maturities and in the A-rated sector.
Richard Williamson and Nora Colomer contributed to this report
