NYC TFA, LIPA price for retail investors as munis hold firm in secondary trade
Municipal bonds turned mixed on Monday as a supply-laden calendar week kicked off. Volume is estimated to come in at $10.8 billion, consisting of $7.3 billion of negotiated deals and $3.5 billion of competitive sales.
There was a promising start two retail order periods for a pair of New York deals at the close of trading on Monday.
Before the deals’ official arrivals, however, the municipal market was unchanged from where it left off on Friday, according to Fred Yosca, managing director at BNY Mellon in New York City.
“Mondays are notorious for not having any volatility or action, and today was no exception,” he said just before the end of trading.
He said the day was mostly focused around customer bid wanted lists stemming from mutual fund redemptions and year end portfolio reorganization, including investors trading short calls to raise cash in order to buy bonds with longer calls from new issues later this week.
Ahead of the official pricings for the large slate of deals, retail investors took advantage on Monday of the rare availability of attractively-priced bonds from the $1.2 billion New York Transitional Finance Authority deal, and the $430 million Long Island Power Authority deals during the retail order periods for those transactions.
The deals offered preliminary levels that were attracting solid retail demand, although Yosca predicted the yields may be cut slightly by the time of the official pricing.
Demand was steady across the curve for the LIPA deal, which extends to 2039 and offered yields on the 5% coupons that were plus 45 basis points to the generic triple-A general obligation curve published by Municipal Market Data, Yosca said. The TFA deal accumulated $400 million in retail orders on a structure that includes a 2038 final maturity priced at plus 35 basis points over the MMD scale.
Yosca said the climate in the municipal market Monday afternoon was relatively firm overall, but unchanged since Friday. He said only time will tell at what levels the New York deals will end up being priced and how strong the demand will be later in the week.
According to one Florida trader, this week’s supply bulge should be well received as long as mutual fund outflows stay in check. The new paper should get a warm reception on the heels of last week’s skimpy slate if investors have available cash to spend, the trader noted. “The question mark becomes whether or not there is enough redemptions and bonds redeemed this month to match a continued week to week calendar of this supply.”
A continued heavy pace of volume later this month could create supply-side pressure that forces spreads to widen, he said.
“The redemption and reinvestment cash available to soak up any supply combined with mutual fund outflows could leave the market searching for discounted buyers that can only put money to work if things get cheap enough,” he said.
Others agreed the mutual fund outflows are impacting new issues.
“While the surge in the impending new-issue calendar should be dispatched with ease, any acceleration in fund outflows could put pressure on prices, aggravating any latent weakness in an already delicate market,” Stephen Winterstein, managing director of research at Wilmington Trust, wrote in a weekly municipal market update released on Monday.
Overall, he said, the tax-exempt municipal market routinely ignores or is slow to respond to directional shifts in taxable benchmark interest rates, but there was some reaction by the end of last week.
“The UST’s firmness last week did not transmit into the municipal bond market, at least not until perhaps Thursday,” he wrote. “By Friday’s close, the reversal and calming was entirely insufficient to generate positive returns on the week.”
“While the near-term strength in the UST market was a welcome break for taxable bond investors, the tax-exempt municipal market seemed to flout the good news,” he wrote. “Despite the applauded exceptions of a moderately firm tone on Thursday and an outright flat Friday, high-grade municipal bond investors still felt the sting of the erstwhile six-day rout,” he added.
On Monday, Ramirez & Co. opened the first of a two-day retail order period on the New York City Transitional Finance Authority’s $1.2 billion of Fiscal 2019 Series S3 Subseries S3A building aid revenue bonds. The bonds will be priced for institutions on Wednesday.
The BARBs are rated Aa2 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings.
The TFA is also competitively selling $199.57 million of taxable Fiscal 2019 Series S3, Subseries S3B BARBs on Wednesday.
Wells Fargo Securities priced the Long Island Power Authority, N.Y.’s $430 million of Series 2018 electric system general revenue bonds for retail investors ahead of the institutional pricing on Tuesday.
The deal is rated A3 by Moody’s and A-minus by S&P and Fitch.
On Tuesday, Raymond James & Associates is set to price Connecticut’s $850 million of Series 2018B&C special tax obligation bonds for infrastructure purposes. The deal is rated AA by S&P and A-plus by Fitch.
And Bank of America Merrill Lynch is set to price the Essentia Health Obligated Group’s $707 million of healthcare facilities revenue bonds on Tuesday. The deal consists of $667 million from the Duluth Economic Development Authority, Minn., and $40 million from Cass County, N.D. The deal is rated A-minus by S&P and Fitch.
In the competitive sector on Tuesday, the Metropolitan Government of Nashville and Davidson County, Tenn., is selling $724.39 million of general obligation bonds. The deal is rated Aa2 by Moody’s and AA by S&P.
Illinois will sell $250 million of Build Illinois sales tax revenue bond in three sales consisting of $125 million of Junior Obligation Tax-Exempt Series B of October 2018, $115 million of Junior Obligation Tax-Exempt Series A of October 2018, and $10 million of Junior Obligation Taxable Series C of October 2018. The deals are rated AA-minus by S&P and A-minus by Fitch.
The Virginia Public School Authority is selling $110.02 million of Series 2018B school financing revenue bonds, 1997 resolution. The deal is rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
And Minneapolis is selling $112.6 million in two deals consisting of $96.88 million of Series 2018 general obligation capital improvement green bonds and $15.72 million of Series 2018 GO library referendum refunding bonds. The deals are rated AA-plus by Fitch.
Monday’s bond sales
Click here for the NYC TFA BARBs retail pricing
Prior week's top underwriters
The top municipal bond underwriters of last week included JPMorgan Securities, Barclays Capital, Ramirez & Co., Siebert Cisneros & Shank, and Wells Fargo Securities, according to Thomson Reuters data.
In the week of Oct. 7 to Oct. 13, JPMorgan underwrote $745.5 million, Barclays $448.0 million, Ramirez $436.0 million, Siebert $356.1 million and Wells Fargo $327.0 million.
Bond Buyer 30-day visible supply at $12.92B
The Bond Buyer's 30-day visible supply calendar increased $955.5 million to $12.92 billion for Monday. The total is comprised of $4.46 billion of competitive sales and $8.45 billion of negotiated deals.
Municipal bonds were mostly stronger on Monday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the four- to 13-year and 20- to 27-year maturities, rose less than a basis point in the one- to three-year, 14- to 19-year and 29- and 30- year maturities and remained unchanged in the 28-year maturity.
High-grade munis were stronger, with yields calculated on MBIS' AAA scale declining as much as three basis points in the one- to 30-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 the yield on 30-year muni maturity remaining unchanged.
Treasury bonds were slightly stronger and stocks traded mixed.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 86.3% while the 30-year muni-to-Treasury ratio stood at 102.0%, 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.
Prior week's top FAs
The top municipal financial advisors of last week included PFM Financial Advisors, Stifel, Public Resources Advisory Group, CSG Advisors and Montague DeRose & Associates, according to Thomson Reuters data.
In the week of Oct. 7 to Oct. 13, PFM advised on $593.5 million, Stifel $427.1 million, PRAG $300.0 million, CSG $269.4 million and Montague $215.3 million.
Previous session's activity
The Municipal Securities Rulemaking Board reported 39,151 trades on Friday on volume of $12.40 billion.
New York, California and Texas were the municipalities with the most trades, with the Empire State taking 18.815% of the market, the Golden State taking 16.932% and the Lone Star State taking 12.685%.
BAML: $44B of muni bonds on midterm ballots
There are about $44 billion of municipal bond referendums on the Nov. 6 ballots.
“While that amount is up over 73% year-over-year, it is roughly in line with the $46 billion average over the past four midterm elections in 2002, 2006, 2010 and 2014,” Ian Rogowm municipal research strategist at Bank of America Merrill Lynch, wrote in a Monday market comment. “On average, 82.7% of bond authorization sought is ultimately approved in midterm election years. If that trend continues, roughly $36.4 billion of bonds could be approved by voters this November,” he said.
He added that the bulk of bond ballots -- $27.4 billion -- come from California, which amount to over 62% of the U.S. total.
Prior week's actively traded issues
Revenue bonds comprised 56.97% of total new issuance in the week ended Oct. 12, down from 57.13% in the prior week, according to Markit. General obligation bonds made up 37.83%, down from 38.00% while taxable bonds accounted for 5.20%, up from 4.87%.
Some of the most actively traded munis by type in the week were from New York, New Jersey and California issuers. In the GO bond sector, the New York City zeros of 2042 traded 15 times. In the revenue bond sector, the New Jersey Transportation Trust Fund Authority 4s of 2037 traded 44 times. And in the taxable bond sector, the California 7.3s of 2039 traded 11 times.
Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were higher, as the $45 billion of three-months incurred a 2.270% high rate, up from 2. 220% the prior week, and the $39 billion of six-months incurred a 2.415% high rate, up from 2. 380% the week before.
Coupon equivalents were 2.315% and 2.479%, respectively. The price for the 91s was 99.426194 and that for the 182s was 98.779083.
The median bid on the 91s was 2.235%. The low bid was 2.190%. Tenders at the high rate were allotted 41.44%. The bid-to-cover ratio was 2.96.
The median bid for the 182s was 2.380%. The low bid was 2.275%. Tenders at the high rate were allotted 22.33%. The bid-to-cover ratio was 2.87.
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 $93.000 billion of four-week bills outstanding.
Treasury also said it will sell $25 billion of eight-week bills Tuesday.
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 Ziad Saba at 212-803-6079 for more information.