Top quality municipal bonds finished weaker on Monday in secondary activity, traders said, with yields on most maturities strengthening by one basis point.
In the primary, traders are looking ahead to an eventful week, with just over $6 billion of new supply scheduled to come to market.
Secondary Market
The yield on the 10-year benchmark muni general obligation rose one basis point to 1.60% from 1.59% on Friday, while the 30-year muni yield increased one basis point to 2.55% from 2.54%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were little changed on Monday. The yield on the two-year Treasury was unchanged from 0.70% on Friday, while the 10-year Treasury yield inched up to 1.73% from 1.72% and the 30-year Treasury bond yield was flat at 2.56%.
The 10-year muni to Treasury ratio was calculated at 92.9% on Monday compared with 92.6% on Friday, while the 30-year muni to Treasury ratio stood at 99.6% versus 99.5%, according to MMD.
Previous Week's Actively Traded Issues
Revenue bonds comprised 54.48% of new issuance in the week ended April 8, up from 52.56% in the previous week, according to Markit. General obligation bonds comprised 39.70% of total issuance, down from 40.84%, while taxable bonds made up 5.82%, down from 6.55%.
Some of the most actively traded issues by type were in Puerto Rico, Texas and Florida. In the GO bond sector, the Puerto Rico commonwealth 8s of 2035 traded 53 times. In the revenue bond sector, the Tarrant County, Texas, Cultural Education Facilities Financing Corp. 4s of 2042 traded 71 times. And in the taxable bond sector, the Florida State Board pf Administration Finance Corp. 2.638s of 2021 traded 22 times, Markit said.
MMD: 10-Year Muni Spreads Near 7-Year Low
Spreads on the MMD benchmark muni are close to seven-year lows, MMD Senior Market Strategist Daniel Berger wrote in a Monday market comment.
“Last week, we saw the A/AAA 10-year GO spread approach its seven-year low as it reached +50 basis points in the 10-year range. This spread reached +160 basis points on March 19, 2009 and has steadily decreased since then,” Berger wrote. “One has to go back to 2008 (during the height of the financial crisis) to find this spread as low. During the past 10 years, it was as low as +21 basis points.”
He said investors need to be mindful of several factors that could influence how far spreads could fall.
“This spread can go down further. It might go +40 basis points. However, we urge caution and think that while it may go lower, this could be a land mine,” he wrote. “The muni market is now credit-focused. For example, the well-publicized pension-related issues that have appeared in Illinois, Pennsylvania, Connecticut and Chicago may prevent an obstacle as to this spread moving or approaching its historical low.”
Primary Market
This week’s $6.13 billion calendar consists of $4.11 billion of negotiated deals and $2.02 billion of competitive sales.
The sales kick off on Tuesday, with Loop Capital Markets expected to price the state of Ohio’s $231 million of Series S general obligation highway capital improvement bonds, backed by its full faith and credit and highway user receipts. The deal is rated Aa1 by Moody’s Investors Service, triple-A by Standard & Poor’s and AA-plus by Fitch Ratings.
Also on Tuesday, Ziegler is expected to price the Illinois Finance Authority’s $107.38 million of Series 2016 A&B revenue bonds for the Presbyterian Homes Obligated Group. The Series A bonds are rated A-minus by Fitch while the Series B bonds are rated triple-B-plus by S&P and A-minus by Fitch.
In the competitive arena, the New York City Transitional Finance Authority will sell $750 million of bonds on Tuesday in three separate offerings. The deals consist of $500 million of Fiscal 2016 Series F Subseries F-3 future tax secured tax-exempt subordinate bonds; $199.525 million of Fiscal 2016 Series F Subseries F-1 future tax secured taxable subordinate bonds; and $50.525 million of Fiscal 2016 Series F Subseries F-2 future tax secured taxable subordinate bonds.
Also on Tuesday, Las Vegas, Nev., will sell $138 million of bonds in three offerings, consisting of $82.46 million of Series 2016A limited tax general obligation performing arts center refunding bonds additionally secured by pledged revenues; $39.66 million of Series 2016B limited tax GO various purpose refunding bonds additionally secured by pledged revenues; and $16.19 million of Series 2016C limited tax GO sewer refunding bonds additionally secured by pledged revenues. The deals are rated Aa2 by Moody’s and AA by S&P.
The Platte River Power Authority, Colo., will sell $154.6 million of Series JJ power revenue bonds on Tuesday. The deal is rated AA by S&P and Fitch.
