Technicals expected to stay favorable; Munis weak as Ill., Port Authority deals sell

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The technical backdrop for municipal bonds is expected to remain favorable with muni issuance remaining muted going into the summer, alongside firm retail demand, according to Peter Hayes, head of BlackRock’s municipal bonds group.

“The recent performance of munis has reset relative valuations to more attractive levels, particularly in the long end of the curve, which is likely to draw increased interest from crossover buyers, providing support to the market,” Hayes wrote in the firm’s latest commentary.

The group, which oversees $129 billion of municipal assets, said it shifted from a defensive to a more neutral stance on duration (interest-rate sensitivity), while maintaining the barbell yield curve strategy with exposure concentrated in maturities of zero- to two-years and 20-years and beyond.

“We reduced exposure to maturities of zero- to three- and six- to eight-years, and added to 20-plus year maturities. Holdings of longer-dated bonds (20-plus years) contributed the most to the fund’s positive performance in March,” said the report. “We increased the fund’s positions in the transportation, healthcare and utilities sectors and reduced exposure to cash and state tax-backed bonds. An overweight to tobacco was most beneficial for performance in March.”

The fund’s largest revenue bond allocations are transportation, healthcare and utilities.

From a credit quality perspective, the fund increased exposure to higher-yielding AA and A issues, while decreasing exposure to higher-quality AAA-rated issues. As of March 31, approximately 19% of the fund’s net assets were high-yield municipal bonds, which primarily include tobacco, corporate-backed, healthcare and education bonds.

“We believe flexible strategies with the ability to be nimble around interest rate and policy uncertainty are likely to continue to outperform the broad municipal market,” the report said.

Primary market
Ramirez & Co. priced the Port Authority of New York and New Jersey’s $413.13 million of 209th Series consolidated bonds for institutions after holding a one-day retail order period.

The deal is rated Aa3 by Moody’s Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.

JPMorgan Securities priced the Putnam County Development Authority, Fla.’s $114.14 million of pollution control revenue refunding bonds.

Citigroup received the written award on the New York Transportation Development Corp.’s $1.38 billion of special facilities revenue bonds. The issue is redevelopment financing to fix Delta Airlines’ Terminals C and D at LaGuardia Airport.

JPMorgan received the written award on the Texas Water Development Board’s $832.07 million of Series 2018 Master Trust State Water Implementation Revenue Fund for Texas revenue bonds.

RBC Capital Markets received the written award on the Main Street Natural Gas Inc.’s $1 billion of Series 2018 gas supply revenue bonds.

In the competitive arena, Illinois sold $500 million of general obligation bonds in two sales.

Bank of America Merrill Lynch won the $450 million of Series of May 2018A GOs with a true interest cost of 4.7442%. BAML also won the $50 million of Series of May 2018B GOs with a TIC of 4.3348%.

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

Since 2008, Illinois has sold about $34.89 billion of securities, with the most issuance occurring in 2010 when it sold $8.68 billion. The Prairie State did not come to market in 2015.
The Metropolitan Council of the Minneapolis-St. Paul area sold $157.295 million of GOs in three sales.

RBC won the $105 million of Series 2016C GO wastewater revenue bonds with a TIC of 3.2011%.

Piper Jaffray won the $40 million of Series 2018D GO transit bonds with a TIC of 2.5345% and Dougherty & Co. won the $12.295 million of Series 2018B taxable GO wastewater revenue bonds with a TIC of 3.2771%.

Wednesday’s bond sales

New York:
Click here for the Port Authority institutional pricing

Click here for the Port Authority retail pricing

Click here for the LaGuardia Delta final pricing

Click here for the TWDB final pricing

Click here for the Main Street Gas pricing

Click here for the $450M state sale

Click here for the $50M state sale

Click here for the Putnam deal

Click here for Che pricing

Secondary market
Municipal bonds were weaker on Tuesday, according to a midday read of the MBIS benchmark scale. Benchmark muni yields rose as much as three basis points in the one- to 30-year maturities.

Munis were also weaker as yields calculated on MBIS’ AAA scale rose as much as three basis points in all maturities across the curve.

Munis were also weaker according to the Municipal Market Data AAA benchmark scale, which show yields gaining three to five basis points in the 10-year maturity and rising four to six basis points in the 30-year maturity.

Treasury bonds were weaker with the 10-year yield rising above 3% for the first time in almost four years. The Dow Jones Industrial Average, S&P 500 Index and Nasdaq Composite Index all moved lower.

Bond Buyer 30-day visible supply at $7.27B
The Bond Buyer's 30-day visible supply calendar decreased $3.86 billion to $7.27 billion on Wednesday. The total is comprised of $4.31 billion of competitive sales and $2.96 billion of negotiated deals.

Previous session's activity
The Municipal Securities Rulemaking Board reported 44,026 trades on Tuesday on volume of $8.76 billion.

California, New York and Texas were the states with the most trades, with the Golden State taking 19.04% of the market, the Empire State taking 10.95% and the Lone Star State taking 9.633%.

Treasury sells $17B 2-year FRNs
The Treasury Department Wednesday auctioned $17 billion of two-year floating rate notes with a high discount margin of 0.033%, at a 0.033%, a price of par. The bid-to-cover ratio was 3.65. Tenders at the high margin were allotted 91.62%.

The median discount margin was 0.029%. The low discount margin was 0.010%.

The index determination date is April 23 and the index determination rate is 1.830%.

Gary Siegel contributed to this report.

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 Airport revenue bonds Water bonds Secondary bond market State of California State of New York State of Texas Texas Water Development Board Port Authority of New York & New Jersey State of Illinois Main Street Natural Gas Inc.