Puerto Rico sales tax bonds weaken after news of budget certification

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Municipals were little changed at midday as some Puerto Rico issues were trading down after a federal control board approved a revised budget for the commonwealth.

Over the weekend, the Financial Oversight and Management Board for Puerto Rico certified a revised, compliant $8.8 billion fiscal 2019 budget for the island.

The board also adopted unanimous resolutions approving the budgets of the Government Development Bank, the Puerto Rico Highways and Transportation Authority, the University of Puerto Rico, the Puerto Rico Aqueduct and Sewer Authority and the Puerto Rico Electric Power Authority, in compliance with PROMESA.

In a letter to Gov. Ricardo Rosselló, Senate President Rivera Schatz, and House Speaker Méndez Núñez, the board noted that upon failure by the Puerto Rico Legislature to officially submit a compliant budget by June 30, it certified the revised budget, which went into effect on July 1.

“The approved budget is reasonable and consistent with the certified Fiscal Plan and the objectives and targets delineated in it. The course has been set; and although it will be challenging, we cannot afford to veer off,” José Carrión, chairman of the oversight board, said in a statement. “ We must all work together to stay that course towards building a stronger Puerto Rico and providing better opportunities for its people as soon as possible.”

The news halted a recent rally in bonds issued by the Puerto Rico Sales Tax Financing Corp.

In active trading on Monday, the COFINA Series 2007B revenue 6.05s of 2036 were trading at a high price of 85 cents on the dollar compared to 86.25 cents on Friday, 84 cents on Thursday and 83.1 cents on Wednesday, according to EMMA. Volume totaled $15.74 million in 10 trades on Monday compared to $8.89 million in 18 trades on Friday, $22.01 million in 32 trades on Thursday and $11.97 million in 30 trades on Wednesday.

The COFINA Series 2009A first subordinate revenue 6s of 2042 were trading at a high price of 42 cents on the dollar compared to 44.75 cents on Friday, 40.5 cents on Thursday and 38.5 cents on Wednesday, according to EMMA. Volume totaled $3.58 million in five trades on Monday compared to $13.03 million in 13 trades on Friday, $1.19 million in eight trades on Thursday and $290,000 in eight trades on Wednesday.

Secondary market
Municipal bonds were mostly stronger on Monday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the five- to 30-year maturities and rose less than a basis point in the one- to four year maturities.

High-grade munis were mixed, with yields calculated on MBIS’ AAA scale falling less than one basis point in the one- to six-year, 12- to 15-year and 29- to 30-year maturities, rising less than a basis point in the seven- to 11-year and 17- to 27-year maturities and remaining unchanged in the 16-year and 28-year maturities.

Trading was subdued on Monday. Financial markets will be closed on Wednesday in observance of Independence Day and the municipal bond market will close early on Tuesday.

Municipals were unchanged on Municipal Market Data’s AAA benchmark scale, which showed the 10-year muni general obligation yield steady and the 30-year muni maturity remaining flat.

Treasury bonds were weaker as stock prices traded lower.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 86.3% while the 30-year muni-to-Treasury ratio stood at 98.3%, 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 32,657 trades on Friday on volume of $9.53 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 17.178% of the market, the Empire State taking 10.679% and the Lone Star State taking 9.624%.

Prior week's actively traded issues
Revenue bonds comprised 54.68% of new issuance in the week ended June 29, down from 55.04% in the previous week, according to Markit. General obligation bonds made up 40.01% of total issuance, up from 39.73%, while taxable bonds accounted for 5.31%, up from 5.23% a week earlier.

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Some of the most actively traded munis by type were from California, West Virginia and Puerto Rico issuers.

In the GO bond sector, the Los Angeles 4s of 2019 traded 175 times. In the revenue bond sector, the West Virginia Hospital Finance Authority 4s of 2051 traded 40 times. And in the taxable bond sector, the Puerto Rico Sales Tax Financing Corp.6.05s of 2036 traded 23 times.

Prior week's top underwriters
The top municipal bond underwriters of last week included JPMorgan Securities, Citigroup, Raymond James & Associates. Wells Fargo Securities and Bank of America Merrill Lynch, according to Thomson Reuters data.

In the week of June 24 to June 30, JPMorgan underwrote $760.5 million, Citi $645.6 million, Raymond James $566.5 million, Wells Fargo $523.3 million, and BAML $485.5 million.

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Primary market
Ipreo estimates weekly bond volume at $73.8 million, down from a revised total of $4.69 billion this week, according to updated data from Thomson Reuters. The calendar contains no negotiated deals, just competitive sales.

Bond Buyer 30-day visible supply at $3.13B
The Bond Buyer's 30-day visible supply calendar increased $1.11 billion to $3.13 billion on Monday. The total is comprised of $1.74 billion of competitive sales and $1.39 billion of negotiated deals.

Treasury sells discount bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the three-months incurred a 1.940% high rate, up from 1.900% the prior week, and the six-months incurred a 2.085% high rate, unchanged from 2.085% the week before. Coupon equivalents were 1.977% and 2.136%, respectively. The price for the 91s was 99.509611 and that for the 182s was 98.945917.

The median bid on the 91s was 1.900%. The low bid was 1.875%. Tenders at the high rate were allotted 53.58%. The bid-to-cover ratio was 2.62.

The median bid for the 182s was 2.060%. The low bid was 2.040%. Tenders at the high rate were allotted 4.12%. The bid-to-cover ratio was 2.83.

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 Vanessa Kim at 212-803-8474 for more information.

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Secondary bond market Primary bond market Puerto Rico Sales Tax Financing Corp (COFINA) Commonwealth of Puerto Rico State of California State of Texas State of New York
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