After a typically quiet Monday for municipals, market participants are eagerly awaiting the commencement of this week's new issue slate, which is led by California's $2.1 billion offering and another one-billion dollar deal from an Oklahoma issuer.
“The market is ready to take on more supply and certainly Cal is going to bring it to us,” said Miles Benickes, managing director at underwriting firm and wealth manager Hilltop Securities in Los Angeles.
Although the market has changed in recent months, Benickes said retail investors will still seek their usual preferred structures from the California offering — par bonds on either the short or long end, or bonds with a slight discount or premium.
“My expectation is that’s where the initial demand will be,” he said, adding there may be some demand for the intermediate bonds at levels similar to those seen in large deals that priced last week, including the New York State Thruway Authority offering.
Bonds priced to yield 3.5% to 3 ⅝% should pique buyers' interest, he said.
“I think it’s been a while since we have seen a Cal deal, and I think there will be a lot of pent up demand and it should get a very good reception,” Benickes said.
Others agreed retail demand is strong and continues to chase new issues despite recent Federal tax cuts.
A $198 million Bentonville, Ark., School District competitive deal last Thursday "blew out quickly as approximately $84 million or 42% of the deal was structured with par or discount bonds for retail investors," Rick Calhoun of Crews & Associates said.
"The balance went to mostly institutional accounts that demand 4% and 5% coupons,, he said. The Bentonville deal was one of the most actively traded issues last week.
Though municipal yields have moved higher to compensate for lower tax brackets and Federal Reserve interest rate increases, demand is expected to remain strong. Current stock market volatility could drive more investors to seek the safety of fixed income.
Previous week's top underwriters
The top municipal bond underwriters of last week included Bank of America Merrill Lynch, Goldman Sachs, RBC Capital Markets, Citi and Barclays, according to Thomson Reuters data.
In the week of Feb. 25 to March 3, BAML underwrote $784 million, Goldman $753 million, RBC $622 million, Citi $462 million and Barclays $427 million.
Previous session's activity
The Municipal Securities Rulemaking Board reported 37,945 trades on Friday on volume of $9.267 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 17.93% of the market, the Empire State taking 9.779% and the Lone Star State taking 8.806%.
The biggest issuance week of the year will start pricing on Tuesday.
The top 2017 municipal bond issuer, the state of California, is set for its first sale of the year. Morgan Stanley is scheduled to price the Golden State’s $2.1 billion of general obligation various purpose and refunding bonds for retail investors on Tuesday before pricing for institutions on Wednesday. The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
"I expect to be fighting over these bonds when institutional pricing comes around, but I expect retail to go after this one aggressively as well" said one California trader. "Although the slate provides some good alternatives for those who are unhappy with their Cal allocations. It would not surprise me one bit if this giant sale gets upsized due to demand."
The trader said that while issuance has been low, investors have been pulling money on keeping them on sidelines, only coming out to play when an attractive name or issue.
"I'm expecting everyone to come out of the woodwork," he said.
Bank of America Merrill Lynch is slated to price the Oklahoma Development Finance Authority’s $1.2 billion of health system revenue and taxable bonds for the Oklahoma University Medicine Project. The deal is rated Baa3 by Moody’s and BB-plus by S&P, but portions of the deal are expected to be insured by Assured Guaranty Municipal Corp., and will be rated AA by S&P.
In the competitive arena, the state of Washington will is set to sell a total of $604.36 million in two sales — $491.95 million of various purpose GO bonds and $112.41 million of motor vehicle fuel tax GO bonds. Both deals are rated Aa1 by Moody’s, AA-plus by S&P and Fitch.
And the State of Ohio is scheduled to sell $300 million of higher education GO bonds. The deal is rated Aa1 by Moody's and AA-plus by S&P and Fitch.
New York State to sell $215 competitively on Thursday
State Comptroller Thomas P. DiNapoli announced Monday that the state of New York will competitively sell $215.2 million of tax-exempt and taxable New York State general obligation bonds.
This coming Thursday, the Empire state expects to sell $146.2 million for new money transportation, education and environmental purposes. Depending on market conditions, the state also expects to sell $69 million to refund a portion of certain outstanding general obligation bonds to reduce the state’s debt service costs.
The net proceeds of $123.7 million of the new money portion of the Series 2018A tax-exempt bonds will finance projects authorized by the following voter-approved bond acts: Environmental Quality (1972), Environmental Quality (1986), Clean Water/Clean Air (1996), Rebuild and Renew New York Transportation (2005) and Smart Schools (2014). The net proceeds of $63.6 million of the refunding portion of the Series 2018A tax-exempt bonds will refund certain outstanding general obligation bonds. The Series 2018A tax-exempt bonds will mature over 14 years.
The net proceeds of $36.6 million of the Series 2018B taxable bonds will finance projects authorized by the following voter-approved bond acts: Environmental Quality (1972), Environmental Quality (1986), Clean Water/Clean Air (1996), Rebuild and Renew New York Transportation (2005) and Smart Schools (2014). The Series 2018B taxable bonds will mature over 10 years.
The net proceeds of $12.7 million of the Series 2018C tax-exempt refunding bonds will provide funds to refund certain outstanding state general obligation bonds. The Series 2018C bonds would mature over 9 years.
Tender auction, announcement
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the three-months incurred a 1.660% high rate, up from 1.645% the prior week, and the six-months incurred a 1.830% high rate, unchanged from 1.830% the week before.
Coupon equivalents were 1.690% and 1.873%, respectively. The price for the 91s was 99.5803891 and that for the 182s was 99.074833.
The median bid on the 91s was 1.630%. The low bid was 1.600%.
Tenders at the high rate were allotted 12.54%. The bid-to-cover ratio was 3.26.
The median bid for the 182s was 1.810%. The low bid was 1.790%.
Tenders at the high rate were allotted 15.34%. The bid-to-cover ratio was 3.19.
The Treasury Department said it will sell $65 billion of four-week discount bills Tuesday. There are currently $84.000 billion of four-week bills outstanding.
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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Corrected March 6, 2018 at 3:33PM: Correcting S&P rating on California GOs.