Uncertainty was evident in the municipal market on Monday afternoon, even though prices firmed following last week’s supply pressure, according to a New York trader.
Munis were stronger in late trade, according to a read of the MBIS benchmark scale. Benchmark muni yields dropped as much as one basis point all along the curve. Yields calculated on MBIS’ AAA scale were also stronger as yields declined as much as a basis point in the one- to 30-year maturities.
“It’s a little better and firmer,” the New York trader said on Monday afternoon.
Low supply and a weaker equity market in the backdrop of the 10-year Treasury yield dropping provided a confusing climate for municipal investors, the trader said.
“The front end of the curve, seems like that’s staying where it is," the trader said. "The longer end is stronger, so we are getting a flattening of the yield curve,” as the spread between two- and 10-year maturities tightened to 45 basis points.
Some investors were sitting tight in the current market, he added.
Although there is some beginning-of-the-month purchasing going on, “people are not sure what the heck’s is going on,” he said. “There is a lot of uncertainty.”
“Until there is some pressure on people it’s not as much fun as it usually is. It’s very difficult when it’s like this,” he said. “Remember, people got banged up last month and now the 20-year general obligation bond is off nine basis points and that’s pretty substantial.”
In the morning, another trader said that demand was evident up and down the yield curve from separately managed accounts and taxable buyers, as well as insurance companies. The trader said he expected the pickup in demand to support the market for the rest of the week.
Munis were also stronger according to Municipal Market Data’s AAA benchmark scale, which showed yields falling by two basis points in both the 10-year and 30-year maturities. Treasury bonds were also stronger on Monday, as stocks turned lower.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 84.8% while the 30-year muni-to-Treasury ratio stood at 99.9%, according to MMD.
This week’s calendar totals $4.26 billion, composed of $2.89 billion of negotiated deals and $1.37 billion of competitive sales. Average weekly volume in 2017 has been about $4.5 billion, off sharply from 2017’s average of over $6 billion a week.
Topping the slate are two deals totaling $931 million from the Dormitory Authority of the State of New York, which bookend the Federal Reserve monetary policy meeting being held this week in Washington. While the FOMC is not expected to raise rates at this meeting, market participants will eye the statement released after the meeting ends on Wednesday for any hints as to the pace of future rate hikes.
Ahead of Tuesday's institutional pricing, Goldman Sachs started a retail order period on DASNY’s $325 million of Series 2018 A&B revenue bonds for Columbia University. The deal is rated triple-A by Moody’s Investors Service and S&P Global Ratings.
On Thursday, Wells Fargo Securities is set to price DASNY’s $606 million of Series 2018A tax-exempt and Series 2018B taxable revenue bonds for New York University.
Also on Tuesday, Piper Jaffray is expected to price the Fort Bend Independent School District, Texas’ $141.86 million of Series 2018 refunding bonds. The deal, backed by the Permanent School Fund guarantee program, is rated AAA by S&P.
Bank of America Merrill Lynch is set to price the Massachusetts Department of Transportation’s metropolitan highway system revenue refunding subordinated bonds and commonwealth contract assistance secured bonds. The deal is rated Aa2 by Moody’s, AA by S&P and AA-plus by Fitch.
In the competitive arena on Tuesday, Prince George’s County, Md., is selling $416.76 million of Series 2018A limited tax general obligation consolidated public improvement bonds. Proceeds will be used to finance various capital improvements. The deal is rated triple-A by Moody’s, S&P and Fitch Ratings.
Monday’s bond sale
Click here for the DASNY retail pricing by Goldman
Prior week's actively traded issues
Revenue bonds comprised 56.21% of new issuance in the week ended April 27, down from 56.92% in the previous week, according to Markit. General obligation bonds made up 38.35% of total issuance, up from 37.91%, while taxable bonds accounted for 5.44%, up from 5.17% a week earlier.
Some of the most actively traded bonds by type were from New York and California issuers.
In the GO bond sector, the New York City zeroes of 2042 traded 22 times. In the revenue bond sector, the New York Transportation Development Corp. 4s of 2036 traded 82 times. And in the taxable bond sector, the California 4.6s of 2038 traded 14 times.
Previous session's activity
The Municipal Securities Rulemaking Board reported 36,192 trades on Friday on volume of $10.25 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 17.857% of the market, the Empire State taking 16.213% and the Lone Star State taking 8.529%
Prior week's top underwriters
The top municipal bond underwriters of last week included Citigroup, JPMorgan Securities, RBC Capital Markets, Bank of America Merrill Lynch and Morgan Stanley, according to Thomson Reuters data.
In the week of April 22 to April 28, Citi underwrote $1.83 billion, JPMorgan $1.82 billion, RBC $1.24 billion, BAML $832 million and Morgan Stanley $466 million.
Treasury expects to borrow $75B in Q2
The Treasury Department said it expects to borrow $75 billion in the second quarter, ending with a $360 billion cash balance. The balance estimate is unchanged from its previous projection, but Treasury had expected to borrow $176 billion in the quarter.
Treasury ended the first quarter with a $290 billion cash balance, compared to the projected $210 billion. Treasury borrowed $488 billion in that period, more than the $441 billion it expected to borrow.
Treasury expects to borrow $273 billion in the third quarter, ending September with a $350 billion balance.
Details of Treasury’s quarterly refunding will be released Wednesday morning.
Treasury to sell $45B 4-week bills
The Treasury Department said it will sell $45 billion of four-week discount bills Tuesday. There are currently $87.001 billion of four-week bills outstanding.
Treasury auctions discount rate bills
Tender rates for the Treasury Department's $48 billion 91-day and $42 billion 182-day discount bills were higher, as the three-months incurred a 1.835% high rate, up from 1.830% the prior week, and the six-months incurred a 1.990% high rate, up from 1.985% the week before.
Coupon equivalents were 1.869% and 2.038%, respectively. The price for the 91s was 99.536153 and that for the 182s was 98.993944.
The median bid on the 91s was 1.800%. The low bid was 1.770%. Tenders at the high rate were allotted 31.05%. The bid-to-cover ratio was 2.87.
The median bid for the 182s was 1.965%. The low bid was 1.940%. Tenders at the high rate were allotted 16.11%. The bid-to-cover ratio was 3.17.
Gary Siegel contributed to this report.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation. Click here for a brief tour of the Workstation, or contact Vanessa Kim at 212-803-8474 for more information.