Supply started to slow on Thursday as the last of the week’s big deals came to market as traders started wrapping up activity ahead of the three-day weekend.
While there is no early close on Friday, many market participants were planning their getaways before the unofficial end of summer hits, marked by Labor Day celebrations next Monday.
Primary market
The Tennessee State School Bond Authority (Aa1/AA+/AA+) competitively sold $199.445 million of higher education facilities second program revenue bonds.
BofA Securities won the $139.21 million of Series 2019A bonds with a true interest cost of 2.7262%.
Robert W. Baird won the $60.235 million of Series 2019B taxable with a TIC of 2.5283%.
PFM Financial Advisors was the financial advisor; Hawkins Delafield was the bond counsel.
Proceeds will be used to for prepaying some of the principal on revolving credit loans and to finance various higher education projects.
Jefferies received the official award on the Los Angeles Harbor Department, California’s (Aa2/AA/AA) $163 million of private activity refunding revenue bonds.
Next week’s calendar looks pretty hefty for a holiday week, with two issues over $1 billion on the slate.
The state of California (Aa3/AA-/AA) is coming with $2.3 billion of general obligation bonds, expected to be priced by Jefferies on Thursday.
And the New York Metropolitan Transportation Authority (NA/NA/NA) is competitively selling $1 billion of bond anticipation notes on Wednesday.
Thursday’s bond sales
Moody’s: VRDOs, CP growing
Banks committed $10.7 billion in credit and liquidity support to municipal variable-rate demand obligations and commercial paper transactions in the second quarter, Moody’s Investors said in a Thursday report. This was up 43% from the first quarter and 16% above that provided in the second quarter a year earlier.
“The increase, which included a heightened $3.8 billion of commitments for newly issued VRDBs and CP, in part reflects the refinancing of direct bank purchases and loans with publicly sold VRDBs, as well as an overall increase in short-term debt issuance,” said Jacek Stolarz, Moody’s AVP and lead author of the report. “Moreover, foreign banks prolonged their strong participation in the VRDB and CP market, issuing 40% of all new bank commitments, significantly higher than 2018's quarterly average of 24%.”
Increased foreign bank interest in the municipal market continued, Moody’s said.
“Barclays Bank PLC, the leading provider of commitments during the quarter, alone issued $1.3 billion of new support facilities,” according to the report.
And Moody’s data showed that commitments with longer terms outnumbered facilities with short maturities by a wide margin.
“Bank facilities with terms of three years or longer accounted for an 83% share of the aggregate amount pledged, a noteworthy increase from 2018's 63% quarterly average,” Moody’ said. “Longer terms contribute to a reduction in the volume of extensions as these facilities do not require revisiting for at least three years.”
The par value of Moody's-rated tender option bond trusts declined sharply in the quarter.
“The 25 trusts we rated totaling $332 million in Q2 2019 significantly trailed the 43 trusts totaling $839 million in the first quarter, but was consistent with the 21 trusts totaling $323 million in the second quarter of 2018,” Moody’s said.
Moody's rated four gas prepayment transactions in the second quarter.
“We rated more than $1.2 billion of gas prepayment bonds in Q2 as the financing structure remained popular due to favorable spreads between tax-exempt and taxable financing available to banks, which simultaneously benefiting municipal utilities' cost of procuring gas supplies,” Moody’s said.
Secondary market
Munis were mixed in late trade on the
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GOs rose one basis point to 1.22% as the yield on the 30-year rose one basis points to 1.84%.
“Munis are taking a breather after yesterday’s solid move; rates are higher, but by less than a basis point,” ICE Data Services said in a Thursday market comment. “Some technical highlights regarding the ICE muni yield curve: the entire curve is now back above a 1% yield, for the first time in a few weeks; and the 2s-10s spread fell to 20 basis points, an all-time low. Puerto Rico bonds are unchanged after Hurricane Dorian’s near miss.”
The 10-year muni-to-Treasury ratio was calculated at 80.3% while the 30-year muni-to-Treasury ratio stood at 92.8%, according to MMD.
Treasuries were weaker as stocks traded up. The Treasury three-month was yielding 1.990%, the two-year was yielding 1.536%, the five-year was yielding 1.416%, the 10-year was yielding 1.522% and the 30-year was yielding 1.988%.
Previous session's activity
The MSRB reported 32,523 trades Wednesday on volume of $12.45 billion. The 30-day average trade summary showed on a par amount basis of $11.13 million that customers bought $5.85 million, customers sold $3.22 million and interdealer trades totaled $2.06 million.
California, Texas and New York were most traded, with the Golden State taking 13.524% of the market, the Lone Star State taking 12.826% and the Empire State taking 11.577%.
The most actively traded security on Wednesday was the Texas 2019 TRANs 4s of 2020, which traded 26 times on volume of $44.88 million. The TRANS, originally priced at 102.62 to yield 1.287%, were trading at a high price of 102.806, a low yield of 1.1%.
3 BB yields dive deeper, near 3 year lows
In the week ended August 29, the weekly average yield to maturity of the Bond Buyer Municipal Bond Index, which is based on 40 long-term bond prices, was unchanged from 3.71% the previous week
The Bond Buyer's 20-bond GO Index of 20-year general obligation yields slipped 10 basis points to 2.97% from 3.07% the week before. It is at its lowest level since Sept. 8, 2016, when it was at 2.83%. The 11-bond GO Index of higher-grade 11-year GOs rose four basis points to 2.51% from 2.61% the previous week. It is at its lowest level since Sept. 8, 2016, when it was at 2.41%. The Bond Buyer's Revenue Bond Index was four basis points higher to 3.45% from 3.55% the week before. It is at its lowest level since Nov. 3, 2016, when it was at 3.44%.
The yield on the U.S. Treasury's 10-year note slipped to 1.51% from 1.62%, while the yield on the 30-year Treasury dipped to 1.97% from 2.11%.
Muni money market funds remain red
Tax-exempt municipal money market fund assets lost $940.0 million, lowering total net assets to $134.75 billion in the week ended Aug. 26, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 191 tax-free and municipal money-market funds rose to 0.97% from 0.96% in the previous week.
Taxable money-fund assets decreased $11.30 billion in the week ended Aug. 27, bringing total net assets to $3.181 trillion, the eleventh consecutive week that the taxable total has reached or exceeded $3 trillion.
The average, seven-day simple yield for the 807 taxable reporting funds declined to 1.75% from 1.79% the prior week.
Overall, the combined total net assets of the 998 reporting money funds fell $12.24 billion to $3.316 trillion in the week ended Aug. 27.
Treasury to sell bills
The Treasury Department said Thursday it will auction $45 billion 91-day bills and $42 billion 182-day discount bills Tuesday.
The 91s settle Sept. 5, and are due Dec. 6, and the 182s settle Sept. 5, and are due March 5, 2020. Currently, there are $62.004 billion 91-days outstanding and no 182s.
Treasury sells bills, notes
The Treasury Department auctioned $32 billion of seven-year notes at a 1.489% high yield, a price of 99.245602. The bid-to-cover ratio was 2.16. Tenders at the high yield were allotted 93.52%. All competitive tenders at lower yields were accepted in full. The median yield was 1.420%. The low yield was 1.350%.
Treasury also auctioned $55 billion of four-week bills at a 2.060% high yield, a price of 99.839778. The coupon equivalent was 2.098%. The bid-to-cover ratio was 2.53. Tenders at the high rate were allotted 92.28%. The median rate was 2.020%. The low rate was 1.990%.
Treasury sold $40 billion of eight-week bills at a 1.990% high yield, a price of 99.690444. The coupon equivalent was 2.029%. The bid-to-cover ratio was 3.18. Tenders at the high rate were allotted 46.11. The median rate was 1.960%. The low rate was 1.940%.
Gary E. 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.
