Supply surge: Visible supply highest since Dec. 2017

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Municipal bond investors are eagerly awaiting the biggest supply week of the year, as strong technicals will continue for the foreseeable future.

The underlying story of strong demand and modest supply that has characterized the municipal market so far this year continues unabated into the summer, said Alan Schankel, managing director at Janney Montgomery Scott.

“Investors have added $53 billion to muni mutual funds plus almost $5 billion to muni ETFs so far in 2019,” he said. “In theory the $58B total of new 2019 cash is enough to absorb more than a third of the first six months of municipal new issue volume of roughly $166.8 billion.”

He continued to say that this illustrates the shifting trend in how investors seeking tax-free income are participating in the municipal market, with vehicles such as mutual funds and ETFs attracting a gradually growing share of the individual tax free investor pie.

While new supply remains manageable it continues to be hobbled by restrictions on advance refundings included in the 2017 tax reform legislation, municipal new-issue supply fell last year, and has continued at the slower pace so far in 2019.

“Through July, the $197 billion total of new muni deals is about 8.5% below the average first 7-month volume of the previous 10 years,” Schankel said. “Supply may be increasing.”

The 30-day visible supply of new issues reached $16.9 billion on August 5th, the highest since December 2017, when issuers were rushing to price deals before year-end to avoid refunding limitations included in the tax legislation.

“Demand has thus far been sufficient to absorb this supply increase, a condition that should continue into the fall months.”

The issuance will start flowing on Tuesday when Minnesota (Aa1/AAA/AAA) is sells a total of $673.345 million of bonds in a total of four separate sales competitively.

The New York City Transitional Finance Authority is also selling a slew competitive bonds. The TFA is set to a total of $1.35B of Future Tax Secured and taxable bonds spanning five sales.

There is an estimated $12.6 billion of new issuance slated for the upcoming week, with 32 deals scheduled $100 million or larger, 9 of which are competitive sales. There are also three deals with an expected par amount exceeding $1 billion.

It will be the largest issuance week of 2019, with the previous biggest week taking place the week of June 10, when volume was roughly $9.87 billion.

Citi is scheduled to price CommonSpirit Health’s (Baa1/BBB+/BBB+) $5.1 billion of tax-exempt fixed rate bonds, tax-exempt hard put bonds and taxable bonds on Wednesday. CommonSpirit will issue $2.7 billion of taxable series 2019 bonds directly and the $2.4 billion series 2019A tax-exempt fixed rate bonds and $665 million series 2019B tax-exempt put bonds will be issued by conduits in Colorado, Kentucky, Tennessee and Washington.

Goldman Sachs is expected to price the Port Authority of New York and New Jersey’s (Aa3/AA-/AA-) $1.25 billion of consolidated taxable, tax-exempt and alternative minimum tax bonds on Wednesday.

JPMorgan is slated to run the books on Dallas Fort Worth International Airport’s (A1/A+/A+/AA) $1.17 billion of joint revenue refunding taxable bonds on Tuesday.

Goldman is also scheduled to price the Lower Alabama Gas District’s (A3/NR/A) $639.76 million of revenue bonds.

he competitive arena, New York City Transitional Finance Authority is expected to sell a total of $1.35 billion of future tax-secured subordinate bonds and taxable bonds spanning five separate sales on Tuesday.

Secondary market
Munis were much stronger in late trading on the MBIS benchmark scale, with yields falling six basis points in both the 10-year and four basis points in the 30-year maturities. High-grades were also stronger, with MBIS’ AAA scale showing yields lowering by four basis points in the 10-year and by four basis points in the 30-year maturities.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year and 30-year maturities dropped six basis points to 1.38% and 2.08%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 79.3% while the 30-year muni-to-Treasury ratio stood at 90.4%, according to MMD.

Treasury yields continued to descend and stocks were trading in the red, with the Dow down 961 points at the low point. The Treasury three-month was yielding 2.012%, the two-year was yielding 1.585, the five-year was yielding 1.539%, the 10-year was yielding 1.727% and the 30-year was yielding 2.291%.

Last week's actively traded issues
Revenue bonds made up 51.87% of total new issuance in the week ended Aug. 2, up from 51.28% in the prior week, according to IHS Markit. General obligation bonds were 43.90%, down from 44.10%, while taxable bonds accounted for 4.23%, down from 4.62%.

Previous session's activity
The Municipal Securities Rulemaking Board reported 27,589 trades Friday on volume of $10.301 billion. The 30-day average trade summary showed on a par amount basis of $10.50 million that customers bought $5.49 million, customers sold $3.07 million and interdealer trades totaled $1.94 million.

California, Texas and New York were most traded, with the Golden State taking 17.984% of the market, the Lone Star State taking 14.547% and the Empire State taking 10.579%.

The most actively traded security was the Texas Private Activity Bond Surface Transportation Corp., 5s of 2058, which traded 17 times on volume of $59.25 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 Ziad Saba at 212-803-6079 for more information.

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Primary bond market Secondary bond market State of California State of Texas State of New York State of Minnesota New York City Transitional Finance Authority Dallas Fort Worth International Airport Board CommonSpirit Port Authority of New York & New Jersey