The municipal market favors issuers, yields are low and investors are bullish

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Attractive low yields enticed issuers into the market on Wednesday as retail investor confidence remained elevated.

Municipal bond funds saw inflows of $1.8 billion, according to the Investment Company Institute, the 10th straight week that investors ploughed cash into mutual funds.

Municipals were steady Wednesday as several billion dollar deals hit the screens.

"The level of selling pressure since the spike of the second quarter has been mitigated as seen through the bids-wanted levels. This is an indication that the market is more comfortable and the indication of the inflows we have seen over the last few weeks contributes to that," a New York strategist said. "However, as headlines become more disconcerting because of COVID, participants need to be cautious of the potential for another massive wave of cases and subsequent market reaction. This is still certainly an issuer market."

Primary market
BofA Securities priced for retail the New York State Urban Development Corp.’s (Aa1/NR/AA+/NR) $2.2 billion of Series 2020C tax-exempt general purpose state personal income tax revenue bonds.

The deal was priced for retail to yield from 0.23% with a 5% coupon to 1.15% with a 5% coupon in 2030, 1.60% with a 5% coupon in 2035, 1.88% with a 4% coupon in 2037, 1.60% with a 5% coupon in 2040, 1.84% with a 5% coupon in 2041, 2.07% with a 4% coupon in 2042, 2.48% with a 3% coupon in 2048, 2.19% with a 4% coupon in 2049 and 2.00% with a 5% coupon in 2050.

Ramirez & Co. priced for retail investors the Port Authority of New York & New Jersey’s (A3/A+/AA-/NAF) $1 billion of consolidated bonds in two tranches.

The $563.505 million of 221st Series bonds, subject to alternative minimum tax, were priced for retail to yield from 0.39% with a 5% coupon in 2021 to 1.55% with a 5% coupon in 2030 and 2.60% with a 4% coupon in 2050.

The $437.915 million of 222nd Series bonds were priced for retail to yield from 0.29% with a 5% coupon in 2021 to 2.15% with a 4% coupon in 2040.

Morgan Stanley priced the Texas Transportation Commission’s (Aaa/NR/AAA/AAA) $1.27 billion of taxable general obligation mobility fund refunding bonds.

The bonds were priced at par to yield from 0.255% in 2021 to 2.063% in 2038 and 2.472% in 2044.

BofA priced the Dormitory Authority of the State of New York’s (Aa1/AA+/NR/NR) $136.61 million of FHA-insured mortgage hospital revenue bonds for the Maimonides Medical Center.

The DASNY deal was priced to yield from 0.57% and 0.63% with 5% coupons in a spilt 2024 maturity to 2.12% with a 4% coupon and 2.41% with a 3% coupon in a split 2040 maturity; a 2043 maturity was priced to yield 2.18% with a 4% coupon and a 2050 maturity was priced to yield 2.57% with a 3% coupon.

Wells Fargo Securities priced the Pennsylvania Higher Educational Facilities Authority’s (A2&A3/AA&A-/NR/NR) $134.73 million of revenue bonds for Drexel University. The bonds were insured by Assured Guaranty Municipal Corp.

The deal was priced to yield from 0.46% with a 5% coupon in 2021 to 2.11% with a 4% coupon in 2041; a 2046 maturity was priced to yield 2.06% with a 5% coupon and a 2050 maturity was priced to yield 2.26% with a 4% coupon

JPMorgan Securities priced the Maryland Health and Higher Educational Facilities Authority’s (A2/A/NR/NR) $153.79 million of tax-exempt revenue bonds for the University of Maryland Medical System.

In the competitive arena, Louisville and Jefferson County Metropolitan Sewer District, Ky. (Aa3/AA/NR/NR) sold $225 million of Series 2020A sewer and drainage system revenue bonds.

BofA won the bonds with a true interest cost of 2.4%.

The bonds were priced to yield from 0.21% with a 5% coupon in 2021 to 2.16% with a 3% coupon in 2046 and to yield 2.50% with a 2.375% coupon in 2050.

Baird was the financial advisor; Wyatt Tarrant was the bond counsel.

Fontana Unified School District, Calif., (Aa3/ A+/NR/NR) sold $158.33 million of taxable general obligation refunding bonds.

JPMorgan Securities won the issue with a TIC of 2.63%.

Government Financial Strategies was the financial advisor; Atkinson Andelson was the bond counsel.

Coming up, Citigroup is set to price the Virginia College Building Authority’s (Aa1/AA+/AA+/NR) $703.82 million of revenue bonds.

And Montgomery County, Md., is competitively selling $852.39 million of general obligation bonds in three offerings on Thursday.

Starved for yield
A strong market and high demand made for increased firmness on Wednesday, as the municipal market continues to recover from the impact of the COVID-19 crisis, according to a New York underwriter.

“The market is very firm and it’s amazing considering the large calendar this week,” the underwriter said on Wednesday afternoon.

“The technicals are still really good and there is a lot of money around,” he said. “The amount of the deals that are in the market are doing well and seeing good response especially for high-grade.”.

Spread compression continues to contribute to the overall market technicals.

“The market has recouped all of the spread widening since the virus began and there continues to be a pretty good market in here,” he said.

He noted that there is a cry for yield among investors — and some are willing to absorb less quality and lower coupons to earn extra compensation.

“People are looking for yield anywhere they can get it,” he said, adding they are hard pressed with very few deals offering yield.

Still, there are others worried about concerns impacting the market, such as spread widening, low yields, scarcity — and overall uncertainty.

“There are still fundamental issues out there that people are leery of, but in certain situations there are still some pretty good opportunities,” he said, suggesting that some New York paper is still trading on the wide side.

The New York State Urban Development Corp. deal — which offered a retail order period Wednesday — was a good barometer of spread activity.

“That’s an issue that was in the market a month ago, so that will be a good gauge of the current demand side,” he said.

The trader noted that the deal’s 5% coupons were offering 50 basis points more than the triple-A generic general obligation scale and the 4% coupons were at plus-70, which he said remains attractive.

He said the market will be watching that deal as a benchmark for upcoming levels and pricing.

Meanwhile, the trader noted the availability of lower coupons in new deals away from the traditional 5% and 4% coupons, which is appealing to the yield-starved investors.

“There is more demand for 3% and 2% that we have never seen before,” he said. “We are at a place where rates are hitting absolute lows and investors are willing to accept lower coupons to get more yield,” he added.

ICI: Muni bond funds see $1.8B inflow
Long-term municipal bond funds and exchange-traded funds saw combined inflows of $1.844 billion in the week ended July 8, ICI reported Wednesday.

It marked the 10th week in a row the funds saw inflows. In the previous week, muni funds saw a revised inflow of $2.300 billion, originally reported as a $2.315 billion inflow, ICI said.

Long-term muni funds alone had an inflow of $1.380 billion in the latest reporting week after a revised inflow of $1.712 billion in the prior week, originally reported as a $1.727 billion inflow.

ETF muni funds alone saw an inflow of $465 million after an inflow of $589 million in the prior week.

Taxable bond funds saw combined inflows of $21.397 billion in the latest reporting week after revised inflows of $16.438 million, originally reported as a $16.462 billion inflow in the prior week.

ICI said the total combined estimated inflows from all long-term mutual funds and ETFs were $15.214 billion after revised outflows in the prior week of $4.929 billion, originally reported as a $4.912 billion inflow.

Secondary market

Some notable trades Wednesday:

Dallas ISD 5s of 2022 yielded 0.21%. San Francisco BART green bonds, 5s of 2026 traded at 0.37%-0.38%.

Another $5 million-plus block of Yale 5s of 2029 landed at 0.73%.

an Francisco BART green bonds, 3s of 2038, yielded 1.71%-1.68%.

Fairfax County, VA 5s of 2038 traded at 1.28%.

New York City TFAs, 4 of 2040, traded at 1.89%-1.88%. Tuesday they traded at 1.94%-1.93%.

Cypress-Fairbanks Texas ISD 3s of 2045 traded at 2.03%.

Mesquite Texas ISD 4s of 2045 traded at 1.58%-1.50%.

Municipals remained steady across the curve Wednesday, according to readings on Refinitiv MMD’s AAA benchmark scale. Yields on the 2021 and 2023 GO munis were flat at 0.19% and 0.21%, respectively. The yield on the 10-year GO muni was unchanged at 0.78% while the 30-year yield was steady at 1.50%.

The 10-year muni-to-Treasury ratio was calculated at 123.8% while the 30-year muni-to-Treasury ratio stood at 112.7%, according to MMD.

The ICE AAA municipal yield curve showed short yields unchanged at 0.170% in 2021 and 0.188% in 2022. The 10-year maturity was flat at 0.756% and the 30-year was steady at 1.525%.

ICE reported the 10-year muni-to-Treasury ratio stood at 128% while the 30-year ratio was at 112%.

The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.18% and the 2022 maturity at 0.21% while the 10-year muni was at 0.78% and the 30-year stood at 1.51%.

The BVAL AAA curve showed the 2021 maturity yielding 0.17% and the 2022 maturity at 0.20%, while the 10-year muni was at 0.76% and the 30-year stood at 1.53%, all unchanged.

Munis were little changed on the MBIS benchmark and AAA scales.

Treasuries were weaker as stock prices traded up.

The three-month Treasury note was yielding 0.145%, the 10-year Treasury was yielding 0.632% and the 30-year Treasury was yielding 1.330%.

The Dow rose 0.50%, the S&P 500 increased 0.40% and the Nasdaq gained 0.40%.

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Primary bond market Secondary bond market Municipal bond funds Port Authority of New York & New Jersey State of New York Louisville and Jefferson County Metropolitan Sewer District, KY Texas Transportation Commission
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