Top-rated municipal bonds finished stronger on Monday, according to traders, with a heftier new issue slate on tap for the week. The calendar is composed of mostly negotiated deals, with no competitive sales over $100 million.
Secondary Market
The yield on the 10-year benchmark muni general obligation fell two basis points to 2.23% from 2.25% on Friday, while the 30-year GO yield dropped two basis points to 3.03% from 3.05%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were also stronger on Monday. The yield on the two-year fell to 1.24% from 1.25% on Friday, while the 10-year Treasury yield dropped to 2.35% from 2.40%, and the yield on the 30-year Treasury bond decreased to 2.98% from 3.02%.
Prior Week's Actively Traded Issues
Revenue bonds comprised 58.21% of new issuance in the week ended March 31, down from 58.39% in the previous week,
Some of the most actively traded issues by type were from Connecticut, California and Massachusetts.
In the GO bond sector, the Connecticut 4s of 2037 were traded 87 times. In the revenue bond sector, the San Jose Airport 5s of 2041 were traded 44 times. And in the taxable bond sector, the Illinois 5.1s of 2033 were traded 20 times.
Previous Week's Top Underwriters
The top negotiated and competitive underwriters of last week included Citigroup, JPMorgan Securities, Goldman Sachs, Stifel and RBC Capital Markets, according to Thomson Reuters data.
In the week of March 26 to April 1, Citi underwrote $2.14 billion, JPMorgan $726.8 million, Goldman Sachs $480 million, Stifel $475.7 million and RBC $372.1 million.
Primary Market
This week's $7.32 billion calendar is composed of $6.75 billion of negotiated deals and $569.2 million of competetive sales.
The state of Massachusetts plans to come to market with over $1 billion of bonds in two separate negotiated deals.
Citigroup is expected to price the state's $778 million general obligation bond offering on Thursday. The deal is comprised of $400 million of Series 2017A GO, $278 million of Series 2017C refunding bonds and $100 million of Series 2017B GO green bonds.
The deal is rated Aa1 by Moody's Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
Bank of America Merrill Lynch is set to price Massachusetts' $305 million of state revolving fund Series 20 green bonds and Series 2017 refunding bonds on Wednesday after a one-day retail order period on Tuesday.
The deal is rated triple-A by Moody's, S&P and Fitch.
Also on Tuesday, Goldman Sachs is expected to price San Antonio, Texas' $306.98 million of electric and gas systems refunding and revenue bonds.
The deal is rated Aa1 by Moody's, AA by S&P and AA-plus by Fitch.
Citi is set to price the state of Oregon's $296 million of Series I, J, and L higher education GOs on Tuesday.
The deal is rated Aa1 by Moody's and AA-plus by S&P and Fitch.
RBC Capital Markets is expected to price the San Joaquin County Transportation Authority, Calif.'s $207.77 million of Series 2017 Measure K sales tax revenue refunding bonds on Tuesday.
The deal is rated AA by S&P and Fitch.
BlackRock's Hayes: 3 Reasons to Own Munis
Peter Hayes, head of the BlackRock municipal bonds group, says there are three main reasons to own municipal bonds today: income, quality and value.
In a market comment
"Finding decent income (without indecent risk) remains a significant challenge today. Municipal bonds continue to represent an attractive source of income, despite much-talked-about tax reform and its potential implications," Hayes wrote. "Our view: Lower individual tax rates and/or a potential cap on tax-exemption may lower the value of munis' tax benefit, but neither change erases it. In fact, munis would still maintain an after-tax yield advantage to Treasuries, even if the top marginal tax rate drops to 33% (from 43.4%, including the ACA tax on investment income) or a 28% cap on the benefit of the tax-exemption -- potentially one of nearly 1% at the 10-year tenor in the latter instance."
He also cited the overall high quality of the marketplace.
"With an average rating of AA, the municipal market as a whole remains of high quality, particularly relative to the corporate bond market. In addition, municipals have tended to have very low default rates, a dynamic that is unlikely to change," he said.
And the value of munis overall should not be overlooked.
"Muni prices fell sharply immediately post-election. The drop reflected interest rate and liquidity concerns, as well as policy uncertainty under a new administration. The policy fears centered on tax reform diluting the benefit of the tax-exemption (and hurting demand) and infrastructure spending inciting a spike in supply. The market has since come to realize that the actual manifestation of these early policy promises isn't so clear cut," he said.
"Ultimately, the market has not adjusted back to its pre-election level and the 'price gap' between Election Day (Nov. 8) and today is where the opportunity may reside," he wrote.
