The municipal bond market may have pulled off the side streets and gotten onto the highway after CUSIP requests rose for a second straight month in April.
“The CUSIP request volume we're seeing in April in the municipal category is noteworthy because it shows that the large increase we saw last month was not a fluke," said Gerard Faulkner, Director of Operations for CUSIP Global Services. The report tracks requests by issuers for bond identifiers as an early indicator of new volume.
The aggregate total of requests in April for CUSIPS for all municipal securities, which include municipal bonds, long-term and short-term notes and commercial paper, rose 0.3% from March. This rise follows a 30.9% monthly increase in pre-market muni activity in March. Before March, muni issuance had been trending lower following the implementation of the Tax Cuts & Jobs Act, which repealed advance refunding of municipal bonds.
"The increase is likely driven by a combination of factors that include the desire of many municipalities to get new issues funded before further interest rate increases, and basic funding needs,” Faulkner said.
Because of previous weakness, total municipal identifier request volume so far in 2018 has fallen 23.4% versus the same period last year.
Among top state issuers, CUSIPs for scheduled public finance offerings from Texas, New York, and New Jersey were the most active in April.
In the competitive arena, Oyster Bay, N.Y., sold a total of $191.205 million in two separate sales.
The $152.665 million of public improvement bonds were won by Bank of America Merrill Lynch with a net interest cost of 3.32%. The $38.54 million of bond anticipation notes were won by BAML with a NIC of 2.28%. The bond deal is rated Baa3 by Moody’s Investors Service and BBB-minus by S&P Global Ratings.
Since 2008, the town of Oyster Bay has sold about $1.21 billion of securities, with the most issuance occurring in 2014 when it sold $380 million. New York’s fourth largest township did not come to market at all in 2012 or 2015.
The Florida Department of Transportation sold $99.99 million of right-of-way acquisition and bridge construction bonds. The deal was won by UBS Financial with a TIC of 3.45%.
Since announcing its comeback to the muni market in April 2017, this is the firm's biggest competitive bond sale victory, based on par amount.
Thursday’s bond sales
Click here for the $153M Oyster Bay deal
Click here for the DOT sale
Municipal bonds were mostly stronger on Thursday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to eight-year and 15- to 30-year maturities and rose less than a basis point in the nine- to 14-year maturities.
High-grade munis were also mostly stronger, with yields calculated on MBIS’ AAA scale falling by as much as two basis points in the one- to seven-year and 10- to 23-year maturities, yields rising less than a basis point in the eight- and none-year and 26- to 30-year, and remaining unchanged in the 24- and 25-year maturities.
An “extremely firm” market led to strong investor demand for high profile credits in the secondary market, according to a North Carolina trader.
“People were kind of waiting for the Treasury auctions, and now that those have gone off for the bid, hopefully it will parlay into further strength in munis,” he said in an interview Thursday afternoon.
He said the firmness was demonstrated by extremely tight bid-asked spreads, steady order flow, and strong institutional demand across the board -- but particularly in the 10-year part of the yield curve.
“Prices aren’t getting pushed to where the curve is stronger, but the bid-asked spreads are tight,” he said.
Inside of 10 years, there was good demand for general obligation and essential service type bonds, he added, but said the heavy order flow is offset by the lack of supply. “There is decent order flow, but it’s hard to replace once you sell something,” he said.
Munis were mixed according to Municipal Market Data’s AAA benchmark scale, which showed the 10-year general obligation muni yield steady and the 30-year muni maturity down two basis points.
Treasury bonds were slightly stronger as stock prices rosel.
On Thursday, the 10-year muni-to-Treasury ratio was calculated at 82.2% while the 30-year muni-to-Treasury ratio stood at 95.2%, according to MMD.
Tax-exempt money market funds saw inflows
Tax-exempt money market funds experienced inflows of $2.89 billion, raising their total net assets to $134.61 billion in the week ended May 8, according to The Money Fund Report, a service of iMoneyNet.com. This followed an inflow of $981.2 million on to $131.72 billion in the previous week.
The average, seven-day simple yield for the 202 weekly reporting tax-exempt funds fell to 1.11% from 1.22% the previous week.
The total net assets of the 833 weekly reporting taxable money funds grew to $2.68 billion to $2.640 trillion in the week ended May 7, after an inflow of $3.57 billion to $2.637 trillion the week before.
The average, seven-day simple yield for the taxable money funds increased to 1.36% from 1.35% from the prior week.
Overall, the combined total net assets of the 1,035 weekly reporting money funds increased $5.57 billion to $2.775 trillion in the week ended May 7, after inflows of $4.55 billion to $2.769 trillion in the prior week.
ICI: Long-term muni funds see $60M outflow
Long-term municipal bond funds saw an outflow of $163 million in the week ended May 2, the Investment Company Institute reported on Wednesday.
This followed an outflow of $96 million out of the tax-exempt mutual funds in the week ended April 25 and outflows of $830 million, $696 million and $110 million in the three prior weeks.
Taxable bond funds saw an estimated inflow of $3.63 billion in the latest reporting week, after seeing an inflow of $2.34 billion in the previous week.
ICI said the total estimated inflows to long-term mutual funds and exchange-traded funds were $43 million for the week ended May 2 after inflows of $1.24 billion in the prior week.
Previous session's activity
The Municipal Securities Rulemaking Board reported 44,121 trades on Wednesday on volume of $12.696 billion.
California, New York and Texas were the states with the most trades, with the Golden State taking 18.962% of the market, the Empire State taking 12.191% and the Lone Star State taking 9.831%.
Treasury details upcoming auctions
The Treasury Department announced these auctions:
- $42 billion of 182-day bills selling on May 14;
- $48 billion of 91-day bills selling on May 14; and
- $11 billion of nine-year 8-month TIPs selling on May 17.
Treasury sells $21B 30-year bonds
The Treasury Department Thursday auctioned $21 billion of 30-year bonds with a 3 1/8% coupon at a 3.130% high yield, a price of 99.903175. The bid-to-cover ratio was 2.38.
Tenders at the high yield were allotted 3.67%. The median yield was 3.100%. The low yield was 3.045%.
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.