The rising taxable municipal supply, which has been siphoning off tax-free volume, is beginning to translate into wider spreads, according to Kimberly Olsan, Senior Vice President at FTN Financial.
“In May, AAA-rated Metro Oregon GOs priced the 10-year maturity +49/UST. More recently, comparable GO issuance has moved wider−Mississippi GOs priced in September +52/UST and this week Wisconsin’s taxable GOs came +63/UST,” Olsan wrote in a Monday market comment, which she also contributes to Court Street Group Research.
“Total volume this year will surpass all prior years dating back to 2011 (only in the 2009-2010 period following the enactment of the ARRA did taxable supply exceed current levels),” she wrote. “Conditions are conducive to both issuers and buyers — low yields are creating funding (and refunding) opportunities on the issuance side and buyers will find more advantageous entry points in the sector.”
She added that the supply and demand dynamic is having an effect on secondary flows.
“Within the published projected issuance total is an estimated $2 billion across both taxable and AMT-subject deals,” she said. “Remaining tax-exempt volume should fare well, but the secondary market will take a tentative approach in responding more fully to UST performance given the supply surge.”
Primary market
Investors will see over $6 billion of new issues come to market this week, with a healthy chunk of the calendar consisting of
The deals will price into a market that has seen declining muni yields as stock and Treasury prices have been subject to volatility due to weak economic data and geo-political turmoil.
On Tuesday, the city and county of San Francisco, California, (Aa1/AA+/AA) will competitively sell $252 million of green certificates of participation.
The financial advisors are KNN Public Finance and Ross Financial. The bond counsel are Norton Rose Fulbright and Curls Bartling.
Proceeds will be used for the acquisition, demolition, construction and installation of improvements for the 49 South Van Ness building project.
Also Tuesday, Siebert Cisneros Shank will price the District of Columbia Water and Sewer Authority’s (Aa2/AA+/AA) $502.72 million public utility bond deal consisting of $343.465 million of Series 2019D taxable subordinate lien revenue refunding bonds, $100 million of Series 2019A subordinate lien revenue green bonds and $58.875 million of Series 2019B subordinate lien revenue bonds.
JPMorgan is a lead manager with co-managers FTN Financial Capital Markets, Jefferies, Morgan Stanley, Raymond James and Stern Brothers as co-managers. FFM is the financial advisor; Squire Patton Boggs and Parker Poe are the bond counsel.
And Suffolk County, N.Y., is selling $181 million in notes and bonds on Tuesday. The county is offering $100 million of Series 2019I tax anticipation notes and $80.945 million of Series 2019B public improvement GOs.
Capital Markets Advisors is the financial advisor; Harris Beach is the bond counsel. Bond proceeds will be used to finance various capital improvements and buy vehicles and equipment.
Last week's actively traded issues
Revenue bonds made up 53.66% of total new issuance in the week ended Oct. 4, up from 52.99% in the prior week, according to
Some of the most actively traded munis by type in the week were from Colorado, Florida and Puerto Rico issuers.
In the GO bond sector, the Lower Colorado River Authority, Texas, 4s of 2049 traded 19 times. In the revenue bond sector, the Alachua County Health Facilities Authority, Fla., 4s of 2049 traded 47 times. In the taxable bond sector, the GDB Debt Recovery Authority of the Commonwealth of Puerto Rico 7.5ss of 2040 traded 27 times.
Secondary market
Munis were stronger on the MBIS benchmark scale, with yields falling by less than one basis point in the 10-year maturity and by one basis point in the 30-year maturity. High-grades were also better, with yields on MBIS AAA scale falling by less than one basis point in the 10- and 30-year maturities.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on both the 10- and 30-year GOs remained unchanged at 1.32% and 1.91%, respectively.
“Muni activity is quiet to start off the week. The ICE muni yield curve is lower in the front end, by as much as three basis points, but the long end is unchanged, resulting in a noticeable steepening,” ICE Data Services said in a Monday Market comment. “Tobaccos and high-yield are unchanged. Taxables are up two to five basis points, but still outperforming an even weaker Treasury market.”
The 10-year muni-to-Treasury ratio was calculated at 85.0% while the 30-year muni-to-Treasury ratio stood at 93.6%, according to MMD.
Stocks were little changed as Treasuries weakened. The Treasury three-month was yielding 1.723%, the two-year was yielding 1.460%, the five-year was yielding 1.381%, the 10-year was yielding 1.550% and the 30-year was yielding 2.041%.
Previous session's activity
The MSRB reported 28,851 trades Friday on volume of $11.25 billion. The 30-day average trade summary showed on a par amount basis of $11.12 million that customers bought $5.98 million, customers sold $3.25 million and interdealer trades totaled $1.89 million.
California, New York and Texas were most traded, with the Golden State taking 16.423% of the market, the Empire State taking 14.362% and the Lone Star State taking 9.399%.
The most actively traded securities were the San Francisco City and County, California, Series 2019C taxable GO 2s of 2020, which traded 19 times on volume of $49.05 million in its debut activity. The $67.5 million maturity was originally priced at 100.294 cents on the dollar to yield 1.55%.
Data appearing in this article from Municipal Bond Information Services, including the MBIS municipal bond index, is available on The Bond Buyer Data Workstation.
