Municipal bonds finished stronger on Friday, traders said, ahead of the upcoming week's healthy new issue slate.
Volume is estimated by Ipreo to come in at $5.37 billion, up from the $4.26 billion sold during the past week, according to revised data from Thomson Reuters. The calendar consists of $4.01 billion of negotiated deals and $1.36 billion of competitive sales.
The past week saw a substantially lighter-than-expected load after the Chicago Public Schools postponed its $875 million general obligation bond deal.
Chicago Board of Education officials placed the offering on the day-to-day negotiated calendar in a move that finance officials said gives them and the underwriting syndicate more time to work on the sale.
CPS Chief Executive Officer Forrest Claypool said on Thursday that the board expects to bring the sale early in the upcoming week.
While the junk-rated district has been battered by negative headlines over a fresh bout of rating downgrades and a state Republican-led effort pushing for state oversight and possible bankruptcy, the district got some positive news that its negotiators and Chicago Teachers Union had broken through a logjam in contract negotiations that could possibly lead to a new contract with some budget relief and avert a strike.
"The CTU has received a serious offer from Chicago Public Schools," CTU president Karen Lewis said in a statement released late Thursday. "The basic framework calls for economic concessions in exchange for enforceable protections of education quality and job security." A special committee will review the offer on Monday.
The concessions likely include teachers relieving the district of covering $170 million in annual pension fund payments, one of a few fiscal proposals the district has proposed to chip away at a $1 billion deficit in its next budget.
Wednesday's postponement decision came with the market awaiting the deal following the Tuesday release of a pre-marketing pricing scale that offered rich yield premiums, with spreads of more than 500 basis points to the Municipal Market Data's benchmark. That's 200 basis points up from the district's April sale results.
Finance officials signaled that the team – led by JPMorgan – was working on the deal structure and could modify the coupons, offering a more discounted structure which offers investors some salve in the event of a default or future restructuring, but that would cut into the level of proceeds. The team also could modify or even drop call features, and possibly change the sizing.
Primary Market
Topping the calendar is a $1.2 billion negotiated deal from the Florida State Board of Administration Finance Corp. JPMorgan Securities is slated to price the Series 2016A taxable revenue bonds on Thursday. The issue, which is tentatively structured as 2019 and 2021 bullet maturities, is rated Aa3 by Moody's Investors Service and AA by Standard & Poor's and Fitch ratings.
Morgan Stanley is expected to price the Dallas Area Rapid Transit's Series 2016A senior lien sales tax revenue refunding bonds on Thursday. The DART deal is rated Aa2 by Moody's and AA-plus by S&P.
In the competitive arena, the Metropolitan Atlanta Rapid Transit Authority, Ga., will sell $247.73 million of Refunding Series 2016B sales tax revenue bonds, Third Indenture Series, on Thursday. The deal is rated Aa2 by Moody's.
MARTA last competitively sold comparable bonds on Nov. 5, 2015, when Wells Fargo Securities won $181.57 million of Series 2015B sales tax revenue bonds, Third Indenture Series with a true interest cost of 3.899%.
Bank of America Merrill Lynch is set to price the county of Hawaii's $235 million of Series 2016 A, B, C, D E, and F taxable general obligation bonds on Wednesday after a retail order period on Tuesday. The deal is rated Aa2 by Moody's.
Piper Jaffray is expected to price San Antonio, Texas' $215.39 million of water system junior lien revenue refunding bonds consisting of Series 2016A and Series 2016B taxable bonds. The deal is rated Aa2 by Moody's and AA by S&P.
On Monday, King County, Wash., will competitively sell $279.08 million of Series 2016A sewer refunding revenue bonds. The deal is rated Aa2 by Moody's and AA-plus by S&P. The county last competitively sold comparable bonds on Oct. 26, 2015, when Bank of America Merrill Lynch won $93.35 million of Series 2015B sewer improvement and refunding revenue bonds with a TIC of 3.36%.
On Tuesday, Nassau County, N.Y., will competitively sell $120.14 million of Series 2016B general improvement bonds. The issue is rated A2 by Moody's, A-plus by S&P and A by Fitch. The county last competitively sold comparable bonds on May 20, 2015, when JPMorgan won $168.90 million of Series 2015B general improvement bonds with a TIC of 3.78%.
On Thursday, the Maryland University System is competitively selling two issues totaling $201.33 million. The deals consist of $140 million of Series 2016A auxiliary facility and tuition revenue bonds and $61.33 million of Refunding Series 2016B auxiliary facility and tuition revenue bonds. Both sales are rated Aa2 by Moody's and AA-plus by S&P.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell four basis points to 1.71% from 1.75% on Thursday, while the 30-year muni yield dropped two basis points to 2.75% from 2.77%, according to the final read of Municipal Market Data's triple-A scale.
On the week, muni yields were little changed. On Friday, Jan. 22, the 10-year muni yield stood at 1.75% while the 30-year muni was at 2.76%, according to MMD.
Treasuries were higher on Friday. The yield on the two-year Treasury declined to 0.77% from 0.82% on Thursday, while the 10-year Treasury yield dropped to 1.93% from 1.98% and the 30-year Treasury bond yield decreased to 2.75% from 2.79%.
The 10-year muni to Treasury ratio was calculated on Friday at 88.7% compared to 88.2% on Thursday, while the 30-year muni to Treasury ratio stood at 99.8% versus 99.3%, according to MMD.
Municipal Bond Funds Saw Inflows for 17th Straight Week
Municipal bond funds reported inflows for the 17th week in a row, according to Lipper data released on Thursday.
Weekly reporting funds said they had $594.785 million of inflows in the week ended Jan. 27, after inflows of $529.687 million in the previous week, Lipper said.
The four-week moving average remained positive at $778.033 million after being in the green at $954.206 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.
Long-term muni bond funds also experienced inflows, gaining $485.450 million in the latest week, on top of inflows of $91.669 million in the previous week. Intermediate-term funds had inflows of $164.233 million after inflows of $502.939 million in the prior week.
National funds saw inflows of $531.623 million after inflows of $475.167 million in the prior week. High-yield muni funds reported inflows of $221.250 million in the latest reporting week, after inflows of $231.066 million the previous week.
Exchange traded funds saw inflows of $93.222 million, after inflows of $107.761 million in the previous week.
In the week ended Jan. 20, long-term, long-term municipal bond funds saw inflows, according to the Investment Company Institute. Muni funds saw $1.003 billion of inflows after $1.319 billion of inflows in the previous week, ICI reported.
