New issues from Denver and Virginia, among those to clear a slightly firmer municipal market
The municipal bond market saw several new deals price to a relatively welcoming investor base. Triple-A benchmark yields fell two or three basis points across the curve. The short end saw larger moves to lower yields, again showing the market views the Fed's involvement as a positive.
The primary handily digested several large new issues, including a Denver water deal and hospital revenue bonds for the Virginia Hospital Center.
However, ICI reported $1.7 billion of outflows out of municipal bond mutual funds, another signal of retail interest in this market, leading some sources to question the coronavirus pandemic-led concerns of when the credit issues break the levee.
Credit, of course, is a focus for all participants.
Last week two more municipal borrowers — a charter school and a land-secured project — disclosed their first payment defaults, according to Municipal Market Analytics.
“Four other issuers became impaired, one drawing on reserves, three noting sharply unbalanced finances, including two student housing projects,” the report said.
The year-to-date default count is now 17, affecting $2.9 billion of outstanding bonds (or 16 affecting $0.3B if Puerto Rico is excluded).
“Also, last week was the first time there were no newly impaired retirement projects since the last week of March. April ended with 19 impairments (high, but not record high), nine of which were in the retirement sector,” MMA said.
There were also two charter schools, two hospitals and an assortment of other risky sectors.
In competitive action Wednesday, the Denver Board of Water Commissioners sold $261 million of revenue and refunding bonds (Aaa/AAA/AAA/NR) in two sales.
Morgan Stanley won the $139.12 million of Series 2020A water revenue bonds with a true interest cost of 3.0113%. The deal was priced to yield from 1.20% with a 5.25% coupon in 2029 to 2.71% with a 3% coupon in 2049.
JPMorgan Securities won the $121.88 million of Series 2020B water revenue refunding bonds with a TIC of 2.0791%. The deal was priced to yield from 0.56% with a 5% coupon in 2020 to 2.67% with a 2.625% coupon in 2040.
Proceeds from the Series 2020A bonds will be used to finance capital improvements to the water works system and plant. Proceeds from the Series 2020B bonds will be used to refund the board's outstanding Series 2007A, 2009A and 2010B master resolution water revenue bonds.
In negotiated activity, JPMorgan priced the Arlington County Industrial Development Authority, Va.’s (NR/A+/AA-/NR) $273.97 million of hospital revenue bonds for the Virginia Hospital Center.
The deal was priced to yield from 1.84% with a 5% coupon in 2023 to 3.55% with a 4% coupon in 2040; a 2045 term bond was priced as 4s to yield 3.71% while a 2050 term was priced as 3.75s to yield 3.86%.
RBC Capital Markets priced North Carolina Housing Finance Agency’s (Aa1/AA+//) $120 million of home ownership revenue bonds, Series 44.
In other action, BofA Securities received the written award on the School Board of Palm Beach County, Fla.’s (Aa3/NR/AA-/NR) $103.82 million of certificates of participation. BofA also received the official awards on the Rhode Island Commerce Corp.’s (A2/AA-/NR/NR) $165.555 million of grant anticipation bonds for the state Department of Transportation and Hamilton County, Ohio’s (NR/A+/AA-/NR) $137.46 million of hospital facilities revenue refunding and improvement bonds for the TriHealth Obligated Group.
Looking ahead, the New York City Transitional Finance Authority said Monday it will issue about $726 million of future tax secured subordinate bonds next week.
The deal is composed of $500 million of tax-exempt fixed-rate bonds and $226 million of taxable fixed-rate bonds. Proceeds will be used to fund capital projects.
Book-running lead manager Loop Capital Markets is expected to price the $500 million exempts on Wednesday, May 13, after a one- day retail order period.
The TFA also expected to competitively sell around $226 million of taxable fixed-rate bonds on May 13.
The muni rally continued into Tuesday with yields falling by a few basis points across the curve.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year GO dropped two basis points to 1.24% while the 30-year declined two basis points to 2.05%.
On the ICE municipal yield curve, the 10-year yield decreased two basis points to 1.243% while the 30-year fell three basis points to 2.052%.
Munis were also stronger on the MBIS benchmark and AAA scale, with yields falling in both the 10- and 30-year maturities.
The 10-year muni-to-Treasury ratio was calculated at 175.1% while the 30-year muni-to-Treasury ratio stood at 144.7%, according to MMD.
Stocks were mixed as Treasuries weakened.
The Dow Jones Industrial Average was down about 0.09% as the S&P 500 index rose 0.07% and the Nasdaq gained 1.16%.
The Treasury 10-year was yielding 0.708% and the 30-year was yielding 1.412%.
ICI reports $1.7B muni fund outflows
Long-term municipal bond funds and exchange-traded funds saw combined outflows of $1.739 billion in the week ended April 29, the Investment Company Institute reported Wednesday.
Funds saw inflows of $613 million In the previous week ended April 22.
Long-term muni funds alone had an outflow of $1.573 billion after an inflow of $520 million in the previous week; ETF muni funds alone saw an outflow of $166 million after an inflow of $93 million in the prior week.
Taxable bond funds saw combined inflows of $8.435 billion in the latest reporting week after inflows of $9.103 billion in the prior week.
ICI said the total combined estimated outflows from all long-term mutual funds and ETFs were $13.444 billion after inflows of $4.571 billion in the prior week.