Munis weaken ahead of supply

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Municipals turned weaker on Monday as traders were preparing their strategies ahead of the week’s issuance.

One New York trader said that for bonds with maturities of “10-years and in, the market is OK. The long end needs to get adjusted.”

One mid-Atlantic trader said this week was a bit perplexing, as Treasuries have had two bad days in a row and munis have had a muted response.

“The calendar is small and the two large New York deals account for a good chunk of the negotiated calendar and the competitive calendar only has a handful of deals over $100 million,” he said. “Munis have been slow to respond because of the low supply, and this week’s slate should be well supported. However, traders are watching the Treasury screen, and if we move to a 3-handle on 10’s after several weeks camped at a 2.85%, sentiment might turn on a dime.”

Primary market
This week’s volume is estimated at $5.3 billion, consisting $3.45 billion of negotiated deals and $1.85 billion of competitive sales. Redemption demand should continue to surface this week even with the arrival of new issuance, municipal sources said.

“The market has been rather sturdy over the past couple weeks since Independence Day,” Stephen Winterstein, managing director at Wilmington Trust. “In terms of supply, we are still running almost 20% behind 2017 on a year-to-date basis and I don’t think the large June-July redemptions have been fully absorbed back into the market.”

Looking to this week, he said volume was manageable.

“Fund flows have picked up a bit, and as we tread water in somewhat of a close trading range, I believe buyers will be able to digest the new-issue calendar without much difficulty,” Winterstein said.

On Tuesday, Wells Fargo Securities is set to price the California Infrastructure and Economic Development Bank’s Series 2018A, B, C and D revenue bonds in index mode of LIBOR floating-rate notes.

The IBank issue, for the California Academy of Sciences in San Francisco, is rated A2 by Moody’s Investors Service

Also on Tuesday, Wells Fargo is slated to price the Port of Corpus Christie Authority of Nueces County, Texas’ $211.685 million of senior lien revenue bonds, consisting of Series 2018A bonds not subject to the alternative minimum tax and Series 2018B taxable bonds. The deal has underlying ratings of A1 from Moody’s and A-plus from S&P Global Ratings.

JPMorgan Securities is expected to price the Humble Independent School District, Texas’ $114.065 million of Series 2018 unlimited tax school building bonds on Tuesday. The deal is rated triple-A by Moody’s and S&P.

Frost Bank is set to price the Laredo Independent School District, Texas’ $102 million of Series 2018 unlimited tax school building bonds on Tuesday.

In the competitive arena on Tuesday, Lancaster, Pa., is selling $118.3 million of Series of 2018 general obligation bonds. The deal is rated A3 by Moody’s

On Wednesday, JPMorgan Securities is set to price the New York City Transitional Finance Authority's $1.15 billion of Fiscal 2019 Series A Subseries A1 tax-exempt future tax secured subordinate bonds. The deal is rated Aa1 by Moody’s and AAA by S&P and Fitch Ratings. Also Wednesday, the TFA is competitively selling $300 million of taxable bonds in two sales consisting of $165.5 million of Fiscal 2019 Series A Subseries A3 future tax secured subordinate bonds and $134.5 million of Fiscal 2019 Series A Subseries A2 future tax secured subordinate bonds.

Bank of America Merrill Lynch is set to price the Dormitory Authority of the State of New York’s $559 million of Series 2018A tax-exempt and Series 2018B taxable revenue bonds for the Montefiore Obligated Group on Wednesday. The deal is rated Baa2 by Moody’s and BBB by S&P.

JPMorgan is expected to price the Idaho Health Facilities Authority’s $315.85 million of Series 2018B revenue bonds for St. Luke’s Health System on Wednesday. The deal is rated A3 by Moody’s and A-minus by S&P.

Prior week's top underwriters
The top municipal bond underwriters of last week included Morgan Stanley, Ramirez & Co., Citigroup, Jefferies and Siebert Cisneros Shank, according to Thomson Reuters data.

In the week of July 15 to July 21, Morgan Stanley underwrote $1.56 billion, Ramirez $1.44 billion, Citi $824.2 million, Jefferies $724.8 million, and SCSCO $615.8 million.
Secondary market
Municipal bonds were weaker on Monday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose as much as one basis point in the one- to 30-year maturities.

High-grade munis were also weaker, with yields calculated on MBIS’ AAA scale falling as much as a basis point across the curve.

Municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the 10-year muni general obligation yield rising three basis points while the yield on the 30-year muni maturity gained four basis points.

Treasury bonds were weaker as stocks traded little changed.

On Monday, the 10-year muni-to-Treasury ratio was calculated at 81.7% while the 30-year muni-to-Treasury ratio stood at 95.8%, 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 29,781 trades on Friday on volume of $8.73 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 15.152% of the market, the Empire State taking 9.969% and the Lone Star State taking 9.737%.

Prior week's actively traded issues
Revenue bonds comprised 54.84% of new issuance in the week ended July 20, up from 54.74% in the previous week, according to Markit. General obligation bonds made up 38.89% of total issuance, down from 39.59%, while taxable bonds accounted for 6.27%, up from 5.67% a week earlier.

Some of the most actively traded munis by type were from New Jersey, Virginia and Illinois issuers.

In the GO bond sector, the New Jersey Transportation Trust Fund Authority 5s of 2031 traded 77 times. In the revenue bond sector, the Fairfax County Industrial Development Authority, Va., 4s of 2048 traded 59 times. And in the taxable bond sector, the Illinois 5.1s of 2033 traded 27 times.
Treasury auctions discount bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the three-months incurred a 1.970% high rate, off from 1.980% the prior week, and the six-months incurred a 2.140% high rate, unchanged from 2.140% the week before.

Coupon equivalents were 2.007% and 2.193%, respectively. The price for the 91s was 99.502028 and that for the 182s was 98.918111.

The median bid on the 91s was 1.950%. The low bid was 1.920%. Tenders at the high rate were allotted 90.08%. The bid-to-cover ratio was 2.92.

The median bid for the 182s was 2.110%. The low bid was 2.085%. Tenders at the high rate were allotted 29.02%. The bid-to-cover ratio was 2.90.

Treasury to sell $55B 4-week bills
The Treasury Department said it will sell $55 billion of four-week discount bills Tuesday. There are currently $92.993 billion of four-week bills outstanding.

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.

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Primary bond market Secondary bond market State of California California Infrastructure and Economic Development Bank Port of Corpus Christi Authority, TX State of Texas New York City Transitional Finance Authority New York State Dormitory Authority Idaho Health Facilities Authority State of Illinois Fairfax County New Jersey Transportation Trust Fund Authority