Supply remains an issue as Texas' $7.2B notes deal dwarfs $4.5B bond slate

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Texas is the week’s headline act as it prepares a note sale that dwarfs the slate of bonds scheduled to come to market in the coming week.

Texas is selling $7.2 billion of Series 2018 tax and revenue anticipation notes on Wednesday, followed by a $1.5 billion sale of RANs by Massachusetts on Thursday. Ipreo forecasts weekly bond volume will fall to $4.5 billion from a revised total of $11 billion in the prior week, according to updated data from Thomson Reuters. The calendar is composed of $3.4 billion of negotiated deals and $1.1 million of competitive sales.

Supply is and will continue to be a major factor and impact for the muni market, Dan Heckman of US Bank said on Friday afternoon. “We do not feel there is enough supply in the marketplace to meet investor demand,” he said.

“We believe the bid for munis will remain strong next week and do not believe that supply will tick up this quarter,” he added. “We may see some move up in supply in late 2018, but have higher expectations that supply increases won't occur until 2019.”

One example of the imbalance of supply and demand was the recent Denver Airport deal, according to Heckman.

“I believe they increased the size $120 million over what they had originally planned to raise” to compensate for the extra hearty demand, Heckman said.

Primary market
In the short-term competitive sector, Texas' notes will cover uneven cash flow to the state’s 1,031 school districts over the course of the fiscal year that runs from Sept. 1 to Aug. 31. Texas is one of the largest issuers of the notes among states.

The financial advisor is George K. Baum and the bond counsel is Orrick Herrington.

The deal is rated SP1-plus by S&P Global Ratings, F1-plus by Fitch Ratings and K1-plus by Kroll Bond Rating Agency.

On Thursday, Massachusetts will sell $1.5 billion of general obligation revenue anticipation notes in three sales consisting of $500 million each of Series 2018A, Series 2018B and Series 2018C RANs.

The financial advisor is Public Resources Advisory Group and the bond counsel is Mintz Levin.

The deal is rated MIG1 by Moody’s Investors Service, SP1-plus by S&P and F1-plus by Fitch.

Topping the bond slate, JPMorgan Securities is set to price Illinois’ $920 million of Series of September 2018AB GO refunding bonds.

Proceeds of the sale will be used to shed the state’s $600 million of floating rate paper and cover the $74 million cost of swaps that synthetically fixed the 2003 issue.

The deal is expected to fare better than the state’s April sale, as Moody’s recently shifted the state’s barely investment-grade rating to a stable outlook from negative after the May passage of the state’s first full-year on-time budget in three years. That sent a signal to investors that Illinois will hold on to its investment grade ratings at least for now and led to a narrowing of spreads that range from 140 basis points to 160 basis points on the curve.

The deal is rated Baa3 by Moody’s, BBB-minus by S&P and BBB by Fitch.

On Tuesday, Citigroup set to price the city and county of Denver’s $300 million of Series 2018 dedicated tax revenue bonds.

The deal is rated Aa3 by Moody’s, AA-minus by S&P and AA by Fitch.

Bond Buyer 30-day visible supply at $8.50B
The Bond Buyer's 30-day visible supply calendar increased $1.59 billion to $8.50 billion for Friday. The total is comprised of $2.77 billion of competitive sales and $5.73 billion of negotiated deals.

Secondary market
Municipal bonds were mostly stronger on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- and two-year and nine- to 30-year maturities, rose as much as a basis point in the three- to seven-year maturities and remained unchanged in the eight-year maturity.

High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling as much as one basis point in the one- and two-year and seven- to 30-year maturities and rising as much as a basis point in the three- to six-year maturities.

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

Treasury bonds were little changed as stock prices rose.

On Friday, the 10-year muni-to-Treasury ratio was calculated at 84.7% while the 30-year muni-to-Treasury ratio stood at 99.5%, 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.

Previous session's activity
The Municipal Securities Rulemaking Board reported 43,692 trades on Thursday on volume of $16.73 billion.

California, Texas and New York were the municipalities with the most trades, with Golden State taking 17.466% of the market, the Lone Star State taking 10.193% and the Empire State taking 8.695%.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended Aug. 17 were from New York, Pennsylvania and Florida issuers, according to Markit.

In the GO bond sector, the New York City 5s of 2020 traded 36 times. In the revenue bond sector, the Allegheny County Hospital Development Authority, Pa., 4s of 2044 traded 90 times. And in the taxable bond sector, the Miami-Dade County Aviation 4.28s of 2041 traded 60 times.

Week's actively quoted issues
Puerto Rico, Ohio and Florida names were among the most actively quoted bonds in the week ended Aug. 17, according to Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5.25s of 2041 were quoted by 129 unique dealers. On the ask side, the Reynoldsburg, Ohio, GO 3.6s of 2048 were quoted by 357 dealers. And among two-sided quotes, the Florida Hurricane Catastrophe Fund Financing Cor. Taxable 2.995s of 2020 were quoted by 21 dealers.

Lipper: Muni bond funds saw inflows
Investors in municipal bond funds again showed confidence and put cash into the funds during the latest reporting week, according to Lipper data released on Thursday.

The weekly reporters saw $452.026 million of inflows in the week ended Aug. 15, after inflows of $622.556 million in the previous week.
Exchange traded funds reported inflows of $63.628 million, after inflows of $43.513 million in the previous week. Ex-ETFs, muni funds saw $388.397 million of inflows, after inflows of $579.043 million in the previous week.

The four-week moving average remained positive at $314.068 million, after being in the green at $515.689 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 $322.370 million in the latest week after inflows of $369.991 million in the previous week. Intermediate-term funds had inflows of $128.601 million after inflows of $167.562 million in the prior week.

National funds had inflows of $445.582 million after inflows of $565.261 million in the previous week. High-yield muni funds reported inflows of $244.232 million in the latest week, after inflows of $263.825 million the previous week.

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 State of Texas Commonwealth of Massachusetts State of Illinois State of California State of New York Denver City & County
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