Subdued issuance continues, as FOMC and competitive deals take lead

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Although the muni market will see more new supply than in the past holiday-shortened week, issuance will stay below average as Federal Reserve policy makers meet in Washington.

Ipreo forecasts weekly bond volume will creep up to about $3.7 billion from a revised total of $2.9 billion this week, according to updated data from Thomson Reuters. The calendar is composed of $2.5 billion of negotiated deals and $1.3 billion of competitive sales.

The Federal Open Market Committee is expected to hold the benchmark interest rate steady at its two-day monetary policy meeting. Observers will pay close attention to any discussion of balance sheet reduction for hints of flexibility.

Michael Pietronico, chief executive officer of Miller Tabak Asset Management, said that in general the firm believes issuance will surprise on the downside this year as economic growth slows and tax receipts follow suit.

“As such we see governments tightening their fiscal belts once again to keep their books in balance,” he said. “Municipal demand, while not dynamic, remains steady — which could be a reflection that the asset class could be close to fully valued at the moment.”

Alan Schankel, managing director and municipal strategist at Janney, said he expected the issuance pace to pick up by now, since concerns over rising rates have faded and issuers are evidencing little inclination to rush deals in order to lock in low rates.

“I see demand as still solid, as illustrated by strong fund inflows,” he said. “I think technical factors are still supportive of munis — light supply, positive fund flows, and higher than average redemption flows in January.”

So far this year, he said, daily closing 10-year Treasury yields have ranged across 23 basis points (2.554 to 2.785) while the 10-year muni yield (Bloomberg BVal) has been in a 6 basis point range, with the high (2.291) and low (2.237) on Jan. 2 and Jan. 3 respectively.

“Things will become more interesting as the year progresses as states begin working on FY 2020 budgets,” said Schankel.

The market's focus for the week will be in the competitive arena, where several large offerings are set for sale.

Topping the slate are two sales coming from the New York Metropolitan Transportation Authority totaling over $1 billion.

The offerings to be sold on Thursday consist of $462.8 million of Series 2019A transportation revenue climate bond certified green bonds and $750 million of Series 2019A transportation revenue bond anticipation notes.

Moody's Investors Service rates the bonds A1 and assigns a MIG1 rating to the BANs.

"The A1 rating on MTA's Transportation Revenue Bonds is based on its essential service to a vast and economically robust service area, strong political and financial support from New York State (Aa1 stable) and New York City (Aa2 stable), and bondholder protection provided by strong governance and a gross pledge of the authority's diverse revenue sources," Moody's said. "The MIG1 rating reflects the expectation that MTA will have strong market access at BAN maturity (Feb. 3, 2020) given the MTA's satisfactory long-term credit quality (A1 negative), strong BAN takeout management plans, and the MTA's status as a sophisticated, frequent issuer of bonds and notes. Moreover, in the unlikely event of a market dislocation that impedes timely long-term debt issuance, we believe ample liquidity will be available to redeem the BANs."

On Monday, the Wauwatosa School District in Wisconsin will sell $124.9 million of general obligation school building and improvement bonds in two offerings, consisting of $63 million of Series 2019A GOs and $61.9 million of Series 2019B GOs. Proceeds will be used to finance various school improvements. The deals are rated Aa1 by Moody’s Investors Service.

On Tuesday, Fairfax County, Virginia, is selling $270.3 million of public improvement bonds and refunding bonds in two offerings consisting of $225.395 million of Series 2019A bonds and $44.88 million of Series 2019 taxable refunding bonds. Proceeds will be used to finance various public and school improvements and to refund some outstanding debt. The deal is rated triple-A by Moody’s, S&P Global Ratings and Fitch Ratings.

Shelby County, Tennessee, is selling $243.325 million of GO public improvement and school bonds in two offerings consisting of $170.865 million of Series 2019A GOs and $72.46 million of Series 2019B GO refunding bonds. The deal is rated AA-plus by S&P and Fitch.

The Broward County School District, Florida, is selling $175.845 million of Series 2019 GO school bonds.

Proceeds will be used for the acquisition, construction, renovation and equipping of educational facilities within the School District, including safety enhancements and instructional technology upgrades. The deal is rated AA-minus by Fitch.

In the negotiated sector, the biggest offering is a $345.53 million composite deal from the Orange County Health Facilities Authority in Florida for the Orlando Health Obligated group. The issue consists of hospital revenue bonds, forward delivery hospital revenue refunding bonds and taxable corporate CUSIP hospital revenue bonds.

Goldman Sachs is expected to price the taxable corporate CUSIP bonds on Tuesday and the tax-exempt bonds on Wednesday. The deal is rated A2 by Moody’s and A-plus by S&P.

Secondary market
Municipal bonds were mixed on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than one basis point in the four- to seven-year, 10-year and 16- to 23-year maturities, rose as much as one basis point in the one- to three-year, eight-year, 11- to 15-year and 25- to 30-year maturities. The three, nine, and 24-year maturities were flat.

High-grade munis were also mixed, with muni yields falling less than one basis point in the four- to six-year and 10- to 25-year maturities, rising less than a basis point in the one- to three-year, eight- and nine-year and 27- to 30-year maturities. The seven, 12 and 26-year maturities were unchanged.

Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on 30-year muni maturity remaining unchanged.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 81.0% while the 30-year muni-to-Treasury ratio stood at 101.2%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.

Lipper: Muni bond funds see inflows
Investors put more money into municipal bond funds in the latest week, according to Lipper data released on Thursday.

The weekly reporters saw $834.371 million of inflows in the week ended Jan. 23 after inflows of $945.911 million in the previous week.
Exchange traded funds reported outflows of $117.588 million, after outflows of $306.220 million in the previous week. Ex-ETFs, muni funds saw inflows of $951.959 million after inflows of $1.252 billion in the previous week.

The four-week moving average remained positive at $683.673 million, after being in the green at $707.936 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 inflows of $500.408 million in the latest week after inflows of $401.730 million in the previous week. Intermediate-term funds had inflows of $243.066 million after inflows of $497.610 million in the prior week.

National funds had inflows of $701.121 million after inflows of $774.506 million in the previous week. High-yield muni funds reported inflows of $383.195 million in the latest week, after inflows of $411.038 million the previous week.

Previous session's activity
The Municipal Securities Rulemaking Board reported 43,207 trades on Thursday on volume of $14.26 billion.

California, New York and Texas were the municipalities with the most trades, with the Golden State taking 13.178% of the market, the Empire State taking 12.069% and the Lone Star State taking 10.607%.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended Jan. 25 were from Texas, New York and Illinois issuers, according to Markit.

In the GO bond sector, the Birdville Independent School District, Texas, 3.75s of 2044 traded 24 times. In the revenue bond sector, the New York City Municipal Water Finance Authority 5s of 2024 traded 39 times. In the taxable bond sector, the Chicago Sales Tax Securitization Corp. 4.787s of 2048 traded 38 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended Jan. 25, according to Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 6s of 2042 were quoted by 98 unique dealers. On the ask side, the California taxable 7.55s of 2039 were quoted by 104 dealers. Among two-sided quotes, the California taxable 6s of 2040 were quoted by 22 dealers.

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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market Municipal bond funds FOMC State of California State of New York State of Texas Metropolitan Transportation Authority Fairfax County County of Shelby, TN