Mutual funds see continued inflows as muni bond supply for week dwindles

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While the municipal bond calendar slips for the upcoming week, buyers will get a taste of the unusual as several out-of-the-ordinary deals are slated to come to market.

IHS Markit Ipreo forecasts bond volume will fall to $5.5 billion from a revised total of $7.5 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $4.2 billion of negotiated deals and $1.3 billion of competitive sales.

Lipper: More inflows into muni funds
For the 12th straight week, cash rushed into municipal bond funds, according to data from Refinitiv Lipper released late Thursday.

Mutual funds which report flows weekly saw $1.532 billion of inflows in the week ended March 27 after inflows of $1.425 billion in the previous week.

Exchange traded muni funds reported inflows of $290.529 million after inflows of $168.827 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.241 million after inflows of $1.256 billion in the previous week.

The four-week moving average remained positive at $1.350 billion, after being in the green at $1.393 billion in the previous week.
“The $1.5 billion of inflows is a continuation of the record inflows we have seen all year,” said Ken Potts, portfolio manager at Fiera Capital. “We prefer to focus on the weekly only numbers as there can be a lag effect created by funds who report monthly but they were $1.5 billion which tells the same story – record inflows."

Pott’s said there were a few notable points worth mentioning when digging deeper into the data.

“Tax-exempt money funds did see $1 billion in outflows and historically they have seen the biggest outflows during tax time,” he said, adding that “inflows to California and New York funds were more muted at $98 million and $34 million, respectively. Because the new tax law is most costly for residents of high-tax states, this could be significant.”

He said that “the bottom line is that thus far, tax payments are not having the impact on demand for munis that some predicted they would. If my behavior is any indication, people may hang onto funds owed for as long as possible. If so, we may still see significant outflows over the next couple of weeks but time is running out.”

Long-term muni bond funds had inflows of $1.129 billion in the latest week after inflows of $1.102 billion in the previous week. Intermediate-term funds had inflows of $318.839 million after inflows of $307.389 million in the prior week. National funds had inflows of $1.339 billion after inflows of $1.427 billion in the previous week. High-yield muni funds reported inflows of $491.916 million in the latest week, after inflows of $480.331 million the previous week.

On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.892 billion in the week ended March 20, while long-term muni funds alone saw an inflow of $1.630 billion as ETF muni funds saw an inflow of $262 million.

Primary market
The Illinois Finance Authority (/AAA/) will sell its first state revolving fund bonds with a green bond designation. The agency will takes retail orders Tuesday ahead of the institutional pricing on its SRF clean water initiative deal Wednesday with BofA Securities and Citigroup serving as leads.

The Michigan Finance Authority (Aa2/AA+/) is pricing $300 million of taxable school loan revolving fund term rate revenue bonds on Wednesday. The offering will bring the state's portfolio of outstanding school loan revolving loan bonds that are a mix of variable-rate and fixed-rate debt.

On Tuesday, investors will see some high-grade paper sell competitively when Anne Arundel County, Md., (Aa1/AAA/NR) offers $302 million of GOs in two sales consisting of $224.05 million consolidated general improvement GOs and $78.32 million of consolidates water and sewer GOs. The deal comes a week after the state of Maryland (Aaa/AAA/AAA) competitively sold about $490 million of GOs.

Proceeds will be used finance various capital improvements and to refund certain outstanding debt. The financial advisor is Public Resources Advisory Group; the bond counsel is McKennon Shelton.

Also on tap is a $197 million green bond deal from the Arizona Board of Regents (Aa2/AA+/NR), a $250 million issue of fixed-rates and R-FLOATS from the Lee Memorial Health System (A2/A+/NR) in Florida and $312 million of multi-family sustainable neighborhood revenue bonds coming from the New York City Housing Development Corp. (Aa2/AA+/NR).

Looking at the overall supply picture, Fiera’s Potts was pragmatic.

“Supply has been a bit ahead of last year, but not terribly robust,” he said, adding that “it’s not been significant enough to meet demand.”

Potts said that looking forward, he believes volume for 2019 will come in ahead of last year, but that it “will probably remain below $400 billion as overall issuance remains muted.”

He did say that if the recent downward trend in muni yields continues, there could be a slight pop in issuance later this year if issuers come to market with current refundings.

Potts said he was more focused on the higher end of the credit spectrum at this point since demand has compressed credit spreads. “Investors hate to get less yield, but the value should be less affected if there is a reversal,” he said.

Bond Buyer 30-day visible supply at $6.77B
The supply calendar rose $1.99 billion to $6.77 billion Friday, composed of $2.18 billion of competitive sales and $4.59 billion of negotiated deals.

Conn. Treasurer lauds $1B sale
The state of Connecticut (A1/A/A+/AA-) achieved sizeable savings on its latest $1 billion bond sale, state Treasurer Shawn Wooden said Friday.

The deal included $750 million of 2019 Series A tax-exempt bonds and $250 million of 2019 Series A taxable bonds.

The overall interest cost was 3.12% on the 20-year tax-exempt bonds, compared to 3.64% for last 20-year GO issue sold in August 2018, according to the state. The overall interest cost was 3.28% on the 10-year taxable new-money bonds, compared to 3.76% on the last 10-year taxable that sold last August.

The state said the tax-exempts achieved a spread of 62 basis points to the benchmark MMD index on the longest maturity offered, down from the previous spread of 82 basis points on the longest maturity offered last August.

The state attributed the lower interest rates to general lower market rates combined with lower spreads on the Connecticut bonds, which resulted in a total lower interest cost of $45.8 million, as compared to the last GO bond sale. The state has not achieved such spreads on a GO bond sale for the 20-year maturity since March 2016, when the state enjoyed higher AA credit ratings.

“The phrase we keep hearing from investors is that Connecticut is finally showing ‘positive momentum,’ ” Wooden said. “The overwhelming response to this sale is further proof that our efforts to improve the state’s long-term fiscal stability is having a direct impact with concrete, measurable savings. What we must do now is seize on this moment and work collaboratively across the public and private sector to get Connecticut’s economy growing.”

Total retail orders received on the bond sale were $828 million, the highest amount on any GO bond sale in Connecticut history. It exceeds the last record for a GO bond sale of $364 million in retail orders last year. Total orders from both retail and institutional investors totaled $5.5 billion, more than five times the amount of bonds issued.

“Over the past two weeks we have seen credit rating agencies respond favorably to our proposed structural reforms, reducing our debt load by not borrowing for things we cannot afford, and preserving our rainy day fund,” Gov. Ned Lamont said.

Ahead of the sale, S&P Global Markets changed the state’s GO outlook to positive from stable, the first positive outlook on the state in 18 years.

The sale was originally sized for $850 million, but was increased to take advantage of favorable market conditions and investor demand. By increasing the bond sale to $1 billion, the state was able to complete in one bond sale all of its scaled-back debt issuance plan for this fiscal year.

“Since I took office, we have scaled back our planned bond issuance for this fiscal year and the next two years of the biennium to reflect the impact of the governor’s proposed ‘debt diet,’ “ Wooden said. “Reducing what we borrow today will result in lower fixed costs for the next 20 years and will help to improve Connecticut’s overall fiscal standing.”

Bond sales
Click here for the Connecticut $1B deal award

Click here for the Connecticut institutional repricing

Click here for the Connecticut institutional pricing

Click here for the Connecticut retail pricing

Secondary market
Munis were mixed on the MBIS benchmark scale Friday, which showed yields falling less than one basis point in the 10-year maturity while rising less than a basis point in the 30-year maturity. High-grade munis were also mixed, with yields dropping one basis point in the 10-year maturity and remaining unchanged in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yields on both the 10-year GO and the 30-year muni remained unchanged.

The 10-year muni-to-Treasury ratio was calculated at 77.3% while the 30-year muni-to-Treasury ratio stood at 92.4%, according to MMD.

Treasuries were little changed as stocks traded higher.

“The ICE Muni Yield Curve is at similar levels as yesterday’s session,” ICE Data Services said in a Friday market comment. “The tobacco sector is unchanged today, along with high-yield. Taxables are up 2.8 basis points in yield today and Puerto Rico is broadly unchanged as well.”

Previous session's activity
The MSRB reported 39,319 trades Thursday on volume of $13.22 billion. California, New York and Texas were most traded, with the Golden State taking 18.172% of the market, the Empire State taking 15.299% and the Lone Star State taking 8.509%. The most actively traded issue was the Puerto Rico COFINA restructured Series 2018 A-1 revenue 5s of 2058 which traded 83 times on volume of $39.72 million.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended March 29 were from Illinois and California issuers, according to IHS Markit.

In the GO bond sector, the Chicago 5.5s of 2035 traded 75 times. In the revenue bond sector, the California Educational Facilities Authority 5s of 2049 traded 102 times. In the taxable bond sector, the Illinois 5.1s of 2033 traded 20 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended March 29, according to IHS Markit.

On the bid side, the COFINA revenue 5s of 2058 were quoted by 190 unique dealers. On the ask side, the University of California taxable 3.349s of 2029 were quoted by 69 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 40 dealers.

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 Municipal bond funds Illinois Finance Authority Michigan Finance Authority County of Anne Arundel, MD State of Connecticut State of California State of New York State of Texas State of Illinois Puerto Rico Sales Tax Financing Corp (COFINA) City of Chicago, IL Regents of The University of California
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