At The Bond Buyer's National Outlook Conference buy and sell side municipal professionals disagreed on the effectiveness of public-private partnerships but agreed that strong market technicals, including net-negative supply, will continue to carry the market.
“The municipal market continue to suffer from chronic supply/demand unbalance but will add firmness to market,” said Peter Block, managing director at Ramirez & Co.
Another point that panelists made at the New York City conference is that state and local governments are on their own, at least for now, in terms of funding for infrastructure related projects.
"You can’t trust government to help with infrastructure finance, they can’t even pay people to do their jobs with the shutdown, never mind find new money to fund projects,” said Howard Cure, director of municipal bond research at Evercore Wealth Management. “In general, more emphasis is going into new projects, instead of maintaining existing projects. Also, the federal government can’t even come up with money in times of emergency or crisis.”
Tom McLoughlin, managing director at UBS, said he doesn’t believe there will be an infrastructure bill this year, instead expecting Congress to wait until 2020.
Lisa Washburn, managing director at Municipal Market Analytics, said that there might be an infrastructure bill and she thinks that advance refundings could be a part of that package.
“I think advance refundings will be back in one way or another in the next few years,” she said. “I could see them coming back as part as a stimulus to whatever the infrastructure bill might be.”
Earlier In a live market survey of participants at the conference sponsored by Fitch Ratings, 41% saw municipal volume for 2019 hitting $375 billion while 36% said the market will see $325 billion. Only 8% saw issuance over $400 billion while 14% believed volume will be under $275 billion.
In Washington on Tuesday, the Federal Open Market Committee started its two-day monetary policy meeting. While it is not expected to alter interest rates, observers will pay close attention to any discussion of balance-sheet reduction for hints of flexibility.
Primary market
Municipal bond buyers saw some new some supply hit the screens on Tuesday, led by competitive offerings from issuers in Virginia, Tennessee and Florida.
Fairfax County, Virginia, sold $270.3 million of public improvement bonds and refunding bonds in two offerings.
Citigroup won the $225.395 million of Series 2019A bonds with a true interest cost of 2.8967%.
Raymond James won the $44.88 million of Series 2019 taxable refunding bonds with a TIC of 3.5239%.
Proceeds will be used to finance various public and school improvements and to refund some outstanding debt.
The financial advisor is PFM Financial Advisors; the bond counsel is Norton Rose.
The deal is rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.
Since 2009, the county has sold about $4 billion of debt with the most issuance occurring in 2009 when it sold $811 million of bonds. The county didn’t come to market in 2010.
Shelby County, Tennessee, sold $253.59 million of GO public improvement and school bonds in two offerings.
Morgan Stanley won the $181.13 million of Series 2019A GOs with a TIC of 3.0701%. Wells Fargo Securities won the $72.46 million of Series 2019B GO refunding bonds with a TIC of 2.65%.
Proceeds will be used to finance various capital and school improvements and to redeem some outstanding debt.
Financial advisors are ComCap Partners and PFM Financial Advisors; the bond counsel is Butler Snow. The deal is rated AA-plus by S&P and Fitch.
The Broward County School District, Fla., sold $175.845 million of Series 2019 GO school bonds. Jefferies won the bonds with a TIC of 3.8008%.
Proceeds will be used for the acquisition, construction, renovation and equipping of educational facilities within the school district, including safety enhancements and instructional technology upgrades.
The financial advisor is PFM Financial Advisors; the bond counsel are Greenberg Traurig and Edwards & Feanny. The deal is rated AA-minus by Fitch.
Tuesday’s bond sales
Virginia
Florida
Tennessee
Bond Buyer 30-day visible supply at $7.56B
The Bond Buyer's 30-day visible supply calendar increased $1.19 billion to $7.56 billion for Tuesday. The total is comprised of $2.74 billion of competitive sales and $4.83 billion of negotiated deals.
Skittish and short
Skittish and strategic was the climate in the municipal market on Tuesday a day before the Federal Reserve is expected to leave its key short-term interest rate unchanged on Wednesday, and signal that it will remain cautious this year about raising rates further.
But, the uncertainty surrounding the Fed’s upcoming activity made for cautious and defensive investors Tuesday afternoon, as there were no large trades to speak of in the secondary market and an overall lack of volume in the new-issue market, according to a New York trader.
“Investors have been beaten up by the equity market so everybody is staring ahead at the timing of a possible rate hike and staying short,” he said.
Due to the strong short-term demand, “municipals are overbought and there’s a lack of supply,” he added.
The trader said there is value on the long end of the municipal market, especially with attractively priced premium-coupon bonds, however, investors are not yet ready to extend and take on extra interest rate risk in the current environment. Some kicker bonds between 2027 and 2030 are offering attractive yields between 3% and 4%, depending on the rating, he noted.
“It would normally be a buy-all-day trade, but I think the maturities are a little out of people’s comfort zone right now,” he said. “If rates could sell off that would have people realizing there’s value there, but until we get some comments out of the Fed on the number of hikes, and potential cuts in 2020, I think people will continue to buy short,” the trader said.
Secondary market
Municipal bonds were stronger Tuesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 29-year maturities and rose less than a basis point in the 30-year maturity.
High-grade munis were stronger, with muni yields falling as much as two basis point in the one- to 30-year maturities.
Municipals were stronger 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 falling by one basis point.
Treasury bonds were weaker as stock prices traded mixed.
On Tuesday, the 10-year muni-to-Treasury ratio was calculated at 81.9% while the 30-year muni-to-Treasury ratio stood at 101.5%, 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.
Previous session's activity
The Municipal Securities Rulemaking Board reported 36,978 trades on Monday on volume of $9.91 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 16.326% of the market, the Empire State taking 11.559% and the Lone Star State taking 10.697%.
Treasury auctions year-bills, FRNs
The Treasury Department Tuesday auctioned $26 billion of 364-day bills at a 2.515% high yield, a price of 97.457056.
The coupon equivalent was 2.600%. The bid-to-cover ratio was 3.16. Tenders at the high rate were allotted 83.61%. The median yield was 2.500%. The low yield was 2.450%.
Treasury also auctioned $20 billion of two-year floating rate notes with a high discount margin of 0.115%, at a 0.115% spread, a price of par. The bid-to-cover ratio was 2.89.
Tenders at the high margin were allotted 52.48%. The median discount margin was 0.105%. The low discount margin was 0.060%. The index determination date is Jan. 22 and the index determination rate is 2.390%.
Treasury auctions bills, notes
The Treasury Department Tuesday auctioned $26 billion of 364-day bills at a 2.515% high yield, a price of 97.457056.
The coupon equivalent was 2.600%. The bid-to-cover ratio was 3.16.
Tenders at the high rate were allotted 83.61%. The median yield was 2.500%. The low yield was 2.450%.
Treasury also auctioned $32 billion of seven-year notes, with a 2 5/8% coupon and a 2.625% high yield, a price of par.
The bid-to-cover ratio was 2.54.
Tenders at the high yield were allotted 1.31%. All competitive tenders at lower yields were accepted in full.
The median yield was 2.580%. The low yield was 2.500%.
Treasury to sell $50B 4-week bills
The Treasury Department said it will sell $50 billion of four-week discount bills Thursday. There are currently $30.009 billion of four-week bills outstanding.
Treasury also said it will sell $35 billion of eight-week bills Thursday.
Gary E. 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.
