Small supply should translate to strong demand for issuers

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This week's miniature muni slate of under $3 billion means deals should have little trouble attracting investors.

“I expect the few deals scheduled for this week to receive a strong reception reflecting recently positive direction of fund flows and relative attractiveness of tax-free yields with muni to Treasury ratios near the highs of 2018,” said Alan Schankel, managing director at Janney Capital Markets.

“Unless the Fed surprises the market by declining to raise the Fed Funds target rate this week, the FOMC action should have minimal impact on tax free yields,” Schankel said.

A New York trader said that although Monday was “sleepy,” once the new issues get rolling it should be a scrum.

“There will be people fighting for bonds,” he said. “On somewhat of scarcity – there aren’t many available, they are attractive and everyone will be trying to get as many as they can. I am sure it will end with lots disappointed in their allotments.”

Primary market
The Philadelphia School District is coming on Thursday with the biggest negotiated deal of the week.

Bank of America Merrill Lynch is scheduled to price the district’s $251 million of Series 2018A general obligation bonds, which are backed by the Pennsylvania state aid intercept program and rated A2 by Moody’s Investors Service and A-plus by Fitch Ratings. The credit has underlying ratings of Ba2 from Moody’s and BB-minus from Fitch.

In the competitive arena on Tuesday, highly rated Anne Arundel County, Md., is selling $263.66 million of Series 2018 GOs consisting of consolidated general improvement bonds and consolidated water and sewer bonds.

The deal is rated Aa1 by Moody’s and AAA by S&P Global Ratings.

Also on Tuesday, the city and county of San Francisco is selling $251.35 million of GOs, consisting of Series 2018A clean and safe neighborhood parks bonds of 2012, and Series 2018B transportation and road improvement bonds of 2014.

The deal is rated Aaa by Moody’s and AA-plus by S&P and Fitch.

Secondary market
The decrease in supply to approximately $2.593 billion this week won’t go unnoticed, according to buyside analysts.

The figure is about $2.527 billion lower than last week’s $5.120 billion, and $4.604 billion less than two weeks ago, observed Stephen Winterstein, managing director of research and chief municipal strategist at Wilmington Trust.

As of Friday’s close, approximately $53.989 billion in new deals have come to market thus far in 2018, according to Winterstein.

“That figure compares with $79.981 billion for the same period in 2017, a $25.991 billion shortfall,” he wrote, adding that as of March 16, supply stood at only 67.509% of where it was on March, 17, 2017. “Nevertheless, the year-to-date deficit is slowly but steadily narrowing,” Winterstein wrote. “We still estimate total new issuance for all of 2018 to come in at $350 billion -- a 20% decline from 2017.”

Aside from volume concerns, he addressed the recent market strength on the long end versus the prior week -- even though short and intermediate high grade tax-exempt rates had edged up.
“If the final three days of this past week provide a hint for Monday’s municipal market tone, we expect a quiet but firm start to the next five trading sessions,” Winterstein wrote.

“The tax-exempt municipal market still has an unsubstantiated tenor, and we believe a spark of fear emanating from political discontent at the Federal level, unforeseen inflation news or negative credit events could materially swing market sentiment,” Winterstein added.

Members of the buyside community will be cautiously watching the municipal market this week ahead of the Federal Open Market Committee's meeting.

Miller Tabak Asset Management in New York expects a relatively quiet week until after the decision on interest rates, according to Michael Pietronico, chief executive officer at Miller Tabak.

"Should the Fed decide to raise rates once again we would expect some support to emerge for longer-dated bonds as the resolve to slow the economy and inflation is welcomed by the market," he said on Monday. "Shorter dated municipals are likely to bleed lower in price as the yield curve continues to flatten," he added.

Prior week's actively traded issues
Revenue bonds comprised 57.51% of new issuance in the week ended March 16, down from 57.88% in the previous week, according to Markit. General obligation bonds made up 37.15% of total issuance, up from 36.72%, while taxable bonds accounted for 5.34%, down from 5.40% a week earlier.
Some of the most actively traded bonds by type in the week ended March 16 were from California, Oklahoma and Colorado issuers, according to Markit.

In the GO bond sector, the California 3.625s of 2047 traded 48 times. In the revenue bond sector, the Oklahoma Development Financing Authority 4.125s of 2057 traded 28 times. And in the taxable bond sector, the Colorado 4.047s of 2038 traded 14 times.

Prior week's top underwriters
The top municipal bond underwriters of last week included Bank of America Merrill Lynch, Jefferies, Morgan Stanley, Goldman Sachs and Wells Fargo Securities according to Thomson Reuters data.

In the week of March 11 to March 17, BAML underwrote $1.69 billion, Jefferies $1.25 billion , Morgan Stanley $542 million, Goldman Sachs $417 million and Wells Fargo $375 million.

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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Primary bond market Secondary bond market Sell side Buy side FOMC School District of Philadelphia