Ready or not, here comes $10B of munis

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Municipal bond market participants will see a hefty calendar of about $10 billion this week as muni yields remain near historically low levels.

Issuers — who have been waiting on the sidelines for most of 2019 have been jolted by record low interest rates combined with voracious investor demand and low volume — have jumped into the market with both feet and have been issuing bond and notes at a pace not seen since 2017 before tax reform took effect.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GO at 1.32% has moved only 11 basis points above its record low of 1.21% set on Aug. 28. The 30-year year muni is at 1.93%, just 10 basis points above the 1.83% low set on the same date.

The Federal Reserve is set to meet Sept. 17-18 and is widely forecast to cut interest rates by 25 basis points. So expect to see even more issuers jump into the primary market before the end of the year.

Primary market
Volume will hit $10 billion in a calendar composed of $7.6 billion of negotiated deals and $2.4 billion of competitive sales. Most of the week’s supply will surge into the market on Tuesday, with over $3.7 billion of paper set to hit the screens. Investors will see $1.5 billion of competitive sales and about $2.3 billion of negotiated deals go up for grabs.

In the competitive arena, Washington state (Aaa/AA+/AA+) on Tuesday will sell $754.43 million of general obligation bonds in three sales fresh off a ratings upgrade. Late last month, Moody’s investors Service raised the state’s GOs to Aaa from Aa1, citing a significant increase in the state’s financial reserves.

The offerings consist of $490.405 million of Series 2020A various purpose GOs, $224.495 million of Series 2020B motor vehicle fuel tax and vehicle related fees GOs and $39.575 million of Series 2020T taxable GOs.

The financial advisors are Montague DeRose & Associates and Piper Jaffray. The bond counsel is Foster Pepper.
Proceeds from the Series 2020A GOs and the 2020T taxable GOs will be used for various capital projects and programs; proceeds from the 2020B GOs will be used for transportation projects.

Mecklenburg County, N.C., (Aaa/AAA/AAA) will sell $200 million of Series 2019 public improvement GOs on Tuesday. Hilltop Securities and the Local Government Commission are the financial advisors. Robinson Bradshaw is the bond counsel.

And Frederick County, Md., (Aaa/AAA/AAA) is selling $118.32 million of Series 2019A public facilities GOs on Tuesday. Davenport & Co. is the financial advisor; Venable is the bond counsel. Proceeds will be used to fund the county’s capital improvement program.

In the short-term market, Greenville County, S.C., (Aa1/A1+/NR) will sell $118.175 million of Series 2019C GO notes. Compass Municipal Advisors is the financial advisor; Pope Flynn is the bond counsel.

In the negotiated sector, RBC Capital Markets will price Broward County, Fla.’s $468.95 million of port facilities revenue bonds on Tuesday. The deal consists of (A1/A/NR) Series 2019A bonds, Series 2019B bonds subject to the alternative minimum tax and Series 2019C bonds and $21.175 million of Series 2019D (A2/A-/NR) AMT bonds.

On Wednesday, Citigroup is expected to price the Los Angeles Department of Water and Power’s (NR/AA/AA) $325 million of Series 2019C power system revenue bonds.
On Thursday, Morgan Stanley is set to price a $330 million century bond for Rutgers University (Aa3/A+/NR). The State University of New Jersey deal is taxable and composed of Series 2019P GOs due in 100 years.

Secondary market
Munis were weaker on the MBIS benchmark scale, with yields rising by two basis points in the 10-year maturity and by one basis point in the 30-year maturity. High-grades were also weaker, with MBIS’ AAA scale showing yields rising by one basis point in the 10-year maturity and by less than a basis point in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GO rose by four basis points to 1.32% while the 30-year muni rose three basis points to 1.93%.

“The ICE muni yield curve is one to two basis points higher,” ICE Data Services said in a Monday market comment. “Tobaccos and high-yield are also up one basis point. Taxable yields are also up with the long end up as much as eight basis points, underperforming Treasuries slightly.”

The 10-year muni-to-Treasury ratio was calculated at 81.3% while the 30-year muni-to-Treasury ratio stood at 91.9%, according to MMD.

Treasuries were weaker as stock prices traded mixed. The Treasury three-month was yielding 1.963%, the two-year was yielding 1.573%, the five-year was yielding 1.476%, the 10-year was yielding 1.614% and the 30-year was yielding 2.090%.
Previous session's activity
The MSRB reported 29,549 trades Friday on volume of $13.48 billion. The 30-day average trade summary showed on a par amount basis of $11.13 million that customers bought $5.94 million, customers sold $3.20 million and interdealer trades totaled $1.99 million.

California, Texas and New York were most traded, with the Golden State taking 21.293% of the market, the Lone Star State taking 11.379% and the Empire State taking 10.28% of the market.

The most actively traded security was the California GO refunding 3s of 2037, which traded 30 times on volume of $54.85 million.

Last week's actively traded issues
Revenue bonds made up 52.22% of total new issuance in the week ended Sept. 6, down from 52.43% in the prior week, according to IHS Markit. General obligation bonds were 43.11%, up from 43.00%, while taxable bonds accounted for 4.67%, up from 4.57%.
Some of the most actively traded munis by type in the week were from New York, Texas and Massachusetts issuers.

In the GO bond sector, the New York City zeros of 2042 traded 20 times. In the revenue bond sector, the Texas TRANs 4s of 2020 traded 51 times. In the taxable bond sector, the Massachusetts 2.9s of 2049 traded 72 times.

Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the $45 billion of three-months incurred a 1.920% high rate, down from 1.930% the prior week, and the $42 billion of six-months incurred a 1.825% high rate, unchanged from 1.825% the week before. Coupon equivalents were 1.962% and 1.873%, respectively. The price for the 91s was 99.514667 and that for the 182s was 99.077361.

The median bid on the 91s was 1.890%. The low bid was 1.860%. Tenders at the high rate were allotted 12.82%. The bid-to-cover ratio was 3.05.

The median bid for the 182s was 1.805%. The low bid was 1.780%. Tenders at the high rate were allotted 46.37%. The bid-to-cover ratio was 2.98.

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. Click here for a brief tour of the Workstation.

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Primary bond market Secondary bond market State of Washington State of California State of Texas State of New York Rutgers University Broward County Los Angeles Department of Water & Power Mecklenburg County County of Frederick, MD Commonwealth of Massachusetts