Munis stronger ahead of $9B slate; markets closed on Wednesday

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Municipal bonds were stronger at midday, as traders get set to see about $9 billion of new issues come to market this week.

Over the weekend, SIFMA recommended that all fixed-income cash markets close on Wednesday in honor of the national day of mourning for former President George H.W. Bush. SIFMA made its recommendation after President Donald Trump announced the U.S. government will be closed on Wednesday in honor of Bush.

On Monday, the market remained stronger on the heels of last week’s remarks by Federal Reserve Board Chairman Jerome Powell that signaled the potential for less interest rate tightening than expected.

The remarks suggested Powell may take a more moderate stance on Fed tightening and keep rates more stable and influenced municipals and Treasuries by pushing yields to their lowest levels in two to four weeks, Howard Mackey of NW Financial observed late Friday.

“The Treasury market reached a trading level of 3% on the 10-year and that’s a big improvement from double digits two weeks ago,” he said, noting the Fed chief’s comments indicated monetary policy is nearing a neutral level.

“I think that the Fed is the biggest catalyst” to the recent improvements in municipals and Treasuries, Mackey noted. “The muni market responded well,” he added, “In the past week, the MMD 10-year declined from 2.61% to 2.51%.”

In addition, the 10-year municipal benchmark rate declined by 25 basis points over the last 20 trading days, he said.

“That’s a steady trend in terms of performance in the muni area,” aided by moderate supply and the Fed announcement, as well as other influencing factors, such as strengthening global fixed income markets and fairly moderate to slow economic growth, including less than expected personal consumption expenditures.

“With the relative scarcity in the market, the bid has been fairly strong, mostly throughout the curve — particularly in the first 10 years,” Mackey said.

Primary market
Weekly bond volume is estimated at $9 billion, with the calendar comprised of $8 billion of negotiated deals and $989.6 million of competitive sales.

JPMorgan Securities is expected to price Chicago’s $1.848 billion of general airport senior lien revenue and refunding bonds on Tuesday for O’Hare International Airport.

The deal is equally divided into a Series 2018B tax-exempt series of senior lien general airport revenue bonds not subject to the alternative minimum tax, a Series 2018A tax-exempt GARB series subject to the AMT, and a Series 2018C taxable GARB series.

Frasca & Associates and Swap Financial Group are financial advisors while Mayer Brown and Neal & Leroy are bond counsel.

Ahead of the sale, S&P Global Ratings and Fitch Ratings affirmed their A ratings for O’Hare while Kroll Bond Rating Agency affirmed its A-plus rating. All three assign a stable outlook.

Also on tap, Bank of America Merrill Lynch is set to price the Delaware River Port Authority, Pa.’s $714 million of tax-exempt Series 2018A revenue refunding bonds and Series 2018B taxable revenue bonds on Thursday.

The deal is rated A2 by Moody’s Investors Service and A-plus by S&P.

In the short-term sector, Morgan Stanley is expected to price Nassau County, N.Y.’s $578 million of notes. The issue is composed of Series 2018A tax anticipation notes, Series 2018B tax anticipation notes, Series 2018A revenue anticipation notes, Series 2018B bond anticipation notes and Series 2018C bond anticipation notes. The deal is rated SP1 by S&P and F1 by Fitch.

In the competitive arena, the Washington Suburban Sanitary District, Md., is selling $390 million of consolidated public improvement bonds of 2018. Proceeds will be used to finance various water and sewer improvements. The financial advisor is Wye River Group and the bond counsel is McKennon Shelton. The deal is rated AAA by Fitch Ratings.

Prior week's top FAs
The top municipal financial advisors of last week included PFM Financial Advisors, Public Resources Advisory Group, Hilltop Securities, Public Alternative Advisors and Capital Markets Advisors, according to Thomson Reuters data.

In the week of Nov. 25 to Dec. 1, PFM advised on $1.8 billion, PRAG $662.5 million, Hilltop $632.4 million, Public Alternative $424.7 million and Capital Markets $182.8 million.
Bond Buyer 30-day visible supply at $12.65B
The Bond Buyer's 30-day visible supply calendar increased $525.5 million to $12.65 billion for Monday. The total is comprised of $1.83 billion of competitive sales and $10.82 billion of negotiated deals.

Secondary market
Municipal bonds were stronger on Monday, according to a read of the MBIS benchmark scale. Benchmark muni yields fell as much as two basis points in the one- to 30-year maturities.

High-grade munis were mostly stronger, with yields calculated on MBIS' AAA scale decreasing as much as two basis points in the one- to 19-year and 29- and 30-year maturities and rising less than a basis point in the 20- to 28-year maturities.

Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and on the 30-year muni maturity remaining unchanged.

Treasury bonds were mixed as stocks traded higher. The Treasury 10-year stood at 3.001% while the Treasury three-month bill was at 2.365%.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 83.3% while the 30-year muni-to-Treasury ratio stood at 97.3%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Previous session's activity
The Municipal Securities Rulemaking Board reported 44,887 trades on Friday on volume of $12.97 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 17.739% of the market, the Empire State taking 12.171% and the Lone Star State taking 9.078%.

Prior week's top underwriters
The top municipal bond underwriters of last week included Bank of America Merrill Lynch, JPMorgan Securities, Citigroup, Piper Jaffray and Stifel, according to Thomson Reuters data.

In the week of Nov. 25 to Dec. 1, BAML underwrote $1.6 billion, JPMorgan $1.2 billion, Citi $747.9 million, Piper $433.7 million and Stifel $398.3 million.
Prior week's actively traded issues
Revenue bonds comprised 57.15% of total new issuance in the week ended Nov. 30, according to Markit with general obligation bonds making up 38.48% and taxable bonds accounting for 4.37%.

Some of the most actively traded munis by type in the week ended Nov. 30 were from New Jersey, California and Puerto Rico issuers, according to Markit.

In the GO bond sector, the Passaic County, N.J., 3s of 2019 traded 21 times. In the revenue bond sector, California’s Golden State Tobacco Securitization Corp. 5s of 2047 traded 37 times. And in the taxable bond sector, the Puerto Rico Government Development Bank 5s of 2023 traded 17 times.

Treasury to sell $40B 4-week bills
The Treasury Department said it will sell $40 billion of four-week discount bills Tuesday. There are currently $30.001 billion of four-week bills outstanding.

Treasury also said it will sell $30 billion of eight-week bills Tuesday.

Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the $39 billion of three-months incurred a 2.365% high rate, down from 2.370% the prior week, and the $36 billion of six-months incurred a 2.495% high rate, up from 2.475% the week before.

Coupon equivalents were 2.412% and 2.562%, respectively. The price for the 91s was 99.402181 and that for the 182s was 98.738639.

The median bid on the 91s was 2.335%. The low bid was 2.310%.

Tenders at the high rate were allotted 28.32%. The bid-to-cover ratio was 3.26.

The median bid for the 182s was 2.465%. The low bid was 2.440%.

Tenders at the high rate were allotted 91.60%. The bid-to-cover ratio was 3.05.

Gary E. 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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market City of Chicago, IL O'Hare Airport State of California State of New York State of Texas Delaware River Port Authority Golden State Tobacco Securitization Corporation Government Development Bank for Puerto Rico
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