Refundings boost $9B calendar as House GOP tax bill looms

Register now

Municipal issuers may soon start rushing to market with refunding and private activity bond deals after the House GOP unveiled a tax plan that includes a ban on advance refundings and PABs after the end of the year.

Five of the 10 biggest deals on the calendar for the week ahead are refundings, helping to swell the total to almost $9 billion, the most since the week of Oct. 16

“Yes, I think it is very likely to cause a mini rush," Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management, said of the house bill. It's "a good thing in the short term in terms of supply, as it desperately tries to increase to try and catch up to the level of demand. In the long term, it will shrink the overall supply but I would say overall, the new tax bill is neutral to a slight positive overall for the market.”

Ipreo estimates volume will rise to $8.99 billion from the revised total of $5.34 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $6.62 billion of negotiated deals and $2.37 billion in competitive sales.

According to data from BlackRock, roughly 30% of issuance in 2016 was advanced refunding, up from 25% in 2015 and 20% in 2014. So far this year, the market has seen a drop to 19% (through September month-end).

The early sentiment from muni pros is that if the bill goes through the process without many hitches, issuers would rush to market with advance refundings while they still can and get the extra savings, as small as they might be.

The Commonwealth of Pennsylvania is set to sell $973.99 million of general obligation refunding bonds on Wednesday. The deal is rated Aa3 by Moody’s Investors Service, A-plus by S&P Global Ratings and AA-minus by Fitch Ratings.

Goldman Sachs is scheduled to price the largest negotiated deal of the week – Salt River Project’s $736 million of agricultural improvement and power district electric system revenue bonds on Tuesday. The deal is rated Aa1 by Moody’s and AA by S&P.

Siebert Cisneros Shank and Co., are slated to price the Triborough Bridge and Tunnel Authority’s $500 million of general revenue refunding bonds on Wednesday after a one-day retail order period. The deal is rated Aa3 by Moody’s, AA-minus by S&P and Fitch and AA by Kroll Bond Rating Agency.

Bank of America Merrill Lynch is expected to price the Commonwealth of Massachusetts’ $499 million of transportation fund revenue bonds for the Rail Enhancement Program and refunding bonds on Wednesday after a one-day retail order period. The deal is rated Aa1 by Moody’s and triple-A by S&P.

AP-MBIS 10-year muni at 2.296%, 30-year at 2.856%
The Associated Press-MBIS municipal non-callable 5% GO benchmark scale was stronger at the market close on Friday.

The 10-year muni benchmark yield fell to 2.296% from 2.318% from the final read on Thursday, according to Municipal Bond Information Services, a national consortium of municipal interdealer brokers. The AP-MBIS 30-year benchmark muni yield declined to 2.856% from 2.872%.

The AP-MBIS benchmark index is a yield curve built on market data aggregated from MBIS member firms and is updated hourly on the Bond Buyer Data Workstation.

Secondary market
Top-shelf municipal bonds were stronger to close out Friday. The yield on the 10-year benchmark muni general obligation was one basis point lower to 1.99% from 2.00% on Thursday, while the 30-year GO yield was five basis points lower to 2.75%from 2.80%, according to a final read of Municipal Market Data's triple-A scale.

U.S. Treasuries were mostly stronger the market close Friday. The yield on the two-year Treasury was flat at 1.62%, the 10-year Treasury yield was down to 2.33% from 2.35% and yield on the 30-year Treasury dipped to 2.81% from 2.82%.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 84.9% compared with 85.2% on Thursday, while the 30-year muni-to-Treasury ratio stood at 97.4% versus 98.9%, according to MMD.

Week's actively traded issues
Revenue bonds comprised 55.47% of new issuance in the week ended Nov. 3, down from 55.80% in the previous week, according to Markit. General obligation bonds made up 38.96% of total issuance, up from 38.58%, while taxable bonds accounted for 5.57%, down from 5.62%.

Some of the most actively traded bonds by type in the week ended Nov. 3 were from Massachusetts, Tennessee and Puerto Rico issuers.

In the GO bond sector, the Commonwealth of Massachusetts 3s 2033 were traded 54 times. In the revenue bond sector, the Tennessee Energy Acquisition Corp. 4s of 2048 were traded 39 times. And in the taxable bond sector, Puerto Rico Commonwealth Government Development Bank 5s of 2023 were traded 30 times.

Week's actively quoted issues
Puerto Rico, Maryland and California names were among the most actively quoted bonds in the week ended Nov. 3, according to Markit.

On the bid side, Puerto Rico Commonwealth Aqueduct and Sewer Authority reveneue 5 ¼’s of 2042 were quoted by 97 unique dealers. On the ask side, The Washington Suburban Sanitation District, Md.’s 3s of 2034 were quoted by 364 dealers. And among two-sided quotes, California 7.3s of 2039 were quoted by 26 unique dealers.

Lipper: Muni bond funds see outflows
Investors in municipal bond funds pulled cash out in the latest week, according to Lipper data released late Thursday.

The weekly reporters saw $654.999 million of outflows in the week of Nov. 1, after inflows of $262.006 million in the previous week.

Exchange traded funds reported outflows of $149.284 million, after inflows of $151.373 million in the previous week. Ex-EFTs, muni funds saw $505.715 million of outflows, after inflows of $110.633 million in the previous week.

The four-week moving average was still positive at $46.685 million, after being in the green at $175.351 million in the previous week. A moving average is an analytical tool used to smooth out price changes by filtering out fluctuations.

Long-term muni bond funds had outflows of $635.982 million in the latest week after outflows of $416.137 million in the previous week. Intermediate-term funds had outflows of $835 million after inflows of $527.272 million in the prior week.

National funds had outflows of $221.241 million after outflows of $41.524 million in the previous week.

High-yield muni funds reported outflows of $81.357 million in the latest week, after inflows of $175.779 million the previous week.

Data appearing in this article from Municipal Bond Information Services, including the AP-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.

For reprint and licensing requests for this article, click here.
Primary bond market Tax reform Secondary bond market Commonwealth of Pennsylvania Salt River Project Agricultural Improvement & Power District Triborough Bridge & Tunnel Authority Triborough Bridge and Tunnel Authority, NY Commonwealth of Massachusetts Tennessee Energy Acquisition Corporation Government Development Bank for Puerto Rico Puerto Rico Aqueduct & Sewer Authority State of California