Top-rated municipal bonds ended stronger in quiet activity on Monday, according to traders, as primary action kicked off with the retail pricing of the week's largest deal.

This week's $4.5 billion new issue calendar is comprised of $2.94 billion of negotiated deals and $1.56 billion of competitive sales.

Bank of America Merrill Lynch priced the week's largest offering for retail investors – the New York State Environmental Facilities Corp.'s $594.39 million of state clean water and drinking water revolving funds revenue bonds for New York City Municipal Water Finance Authority projects. The deal will be priced for institutions on Tuesday.

The Series 2017A second resolution subordinated SRF bonds were priced for retail to yield from 1.14% with a 5% coupon in 2019 to 3.20% with a 3.125% coupon in in 2031, as 3 1/2s to yield 3.60% in 2035, as 4s to yield 3.47% in 2037 and as 5s to yield 3.29% in 2046. The 2017 and 2018 maturities were offered as sealed bids. There were no retail orders taken in the 2032-2035 or 2042 maturities.

The deal is rated triple-A by Moody's Investors Service, S&P Global Ratings and Fitch Ratings.

The NYS EFC 5s of 2022 came in at 1.79%, which is eight basis points above the mid-MMD triple-A scale level, Municipal Market Data Senior Market Analyst Randy Smolik said in a Monday market comment. The 5s of 2027 came in at 2.51%, 10 basis points above the mid-MMD level, he said, while 5s for longer maturities were at spreads as wide as 12 basis points over the MMD scale.

On Tuesday Goldman Sachs is scheduled to price the Dutchess County Local Development Corp.'s $100.58 million of Series 2017 revenue refunding bonds for Vassar College.

The deal is rated Aa3 by Moody's and AA-minus by S&P.

Goldman is also set to price the Oregon Department of Administration Services' $239.32 million of tax-exempt and taxable state lottery revenue bonds for retail investors on Tuesday ahead of the institutional pricing on Wednesday.

The deal is rated Aa2 by Moody's and triple-A by S&P.

In the competitive arena, the San Francisco Unified School District will sell two deals totaling $239.9 million on Tuesday.

The offerings are composed of $180 million election of 2016 Series A general obligation bonds and $59.9 million of 2017 GO refunding bonds. Both sales are rated Aa2 by Moody's, AA-minus by S&P and triple-A by Fitch.

 

Secondary Market

The 10-year benchmark muni general obligation yield fell two basis point to 2.38% on Monday from 2.40% on Friday, while the yield on the 30-year GO dropped two basis point to 3.16% from 3.18%, according to the final read of Municipal Market Data's triple-A scale.

"The high-yield market remains quiet and unchanged and taxable yields moved two basis points to three basis points lower in the mid-range of the curve," according to ICE Data Services.

U.S. Treasuries were stronger on Monday. The yield on the two-year fell to 1.29% from 1.32% on Friday, while the 10-year Treasury yield dropped to 2.47% from 2.50%, and the yield on the 30-year Treasury bond decreased to 3.09% from 3.11%.

 

Puerto Rico Bonds

The Puerto Rico Commonwealth's general obligation bonds extended their slide on Monday. According to data from Markit, the 8s of 2025 yielded 13.12% compared with 12.87% last week, when the Puerto Rico Oversight Board approved a 10-year fiscal plan that will allow the payment of 22.6% to 23.7% of debt due.

The Municipal Securities Rulemaking Board’s EMMA website showed the Commonwealth 8s of 2035 trading on Monday at a lowest price of 61.35 cents on the dollar, compared with a lowest price of 66.25 last Thursday. Monday’s highest price on the 8s was 65.25 compared to a highest price on Thursday of 66.50.

There were 24 trades on Monday on volume of $41.75 million compared to three trades on Thursday of $8 million.

 

MSRB: Previous Session's Activity

The Municipal Securities Rulemaking Board reported 34,961 trades on Friday on volume of $10.08 billion.

 

Previous Week's Top Underwriters

The top negotiated and competitive underwriters of last week included JPMorgan Securities, Morgan Stanley, RBC Capital Markets, Citigroup and Bank of America Merrill Lynch, according to Thomson Reuters data.

In the week of March 12 to March 18, JPMorgan underwrote $1.36 billion, Morgan Stanley $1.04 billion, RBC $707.6 million, Citi $597.3 million and BAML $434.2 million.

 

Prior Week's Actively Traded Issues

Revenue bonds comprised 58.69% of new issuance in the week ended March 17, up from 58.46% in the previous week, according to Markit. General obligation bonds comprised 35.64% of total issuance, down from 35.77%, while taxable bonds made up 5.67%, down from 5.77%.

Some of the most actively traded issues by type were from California, Wisconsin and Puerto Rico. In the GO bond sector, the Los Angeles, Calif., 3s of 2042 were traded 42 times. In the revenue bond sector, the Wisconsin Health and Educational Facilities Authority 4s of 2039 were traded 82 times. And in the taxable bond sector, the Employees Retirement System of the Government of the Commonwealth of Puerto Rico 6.15s of 2038 were traded 16 times.

 

BAML: Munis Outperform Treasuries, Corporates

Issuance for the year-to-date is $75.1 billion as of March 16, down 9.9% from the same period last year, according to a Bank of America Merrill Lynch Global Research report released on Monday.

According to BAML Municipal Research Strategist Sophie Yan, "51.1% of the total issuance for the year-to-date has been related to refundings, compared to 61.1% during the same period last year."

Municipals are outperforming both U.S. Treasury and corporate bonds, the report stated.

Year to date, the BAML Muni Master Index returned 0.568%, outperforming the Treasury Master Index which returned -0.092% and the U.S. Corporate IG Master Index which had a total return of 0.493%.

"The best performance in munis for the YTD has been in the 3-7 year maturities and the BBB-rated sector," Yan wrote.

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