Primary municipal bond market volume is expected to drop to $4 billion in the coming week, as a single note sale from Texas is expected to be larger than the entire bond calendar.

Ipreo estimates volume will sink to $4.02 billion, from the revised total of $5.89 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $3.38 billion of negotiated deals and $638.1 million of competitive sales.

“There just continues to be not enough supply and plenty of demand,” said Dan Heckman, senior fixed income strategist at U.S. Bank Wealth Management. “Deals are being snatched up; the 30-day visible supply is down so the secondary market is lacking supply as well.”

There are 14 long-term bond sales larger than $100 million scheduled, with only one coming from the competitive route. The largest deal of the week will be in the short term sector, as Texas brings $5.4 billion of tax and revenue anticipation notes.

“It’s a difficult market from a value standpoint, there is still value in munis but you have to be very selective until we get more issuance - which might not happen until after Labor Day,” he said. “We have been waiting and waiting for issuance to increase - thought it would have picked up but that did not play out.”

Texas' deal scheduled for Tuesday is the largest note sale of the year and carries top ratings of MIG1 by Moody’s Investors Service, SP-1-plus by S&P Global Ratings, F1-plus by Fitch Ratings and K1-plus by Kroll Bond Rating Agency.

“That big short term note sale will have a lot of demand, those issues go typically well,” Heckman said. “I do think that that investors need to continue to look at the longer end of the curve. That is where we think the real value is.”

Heckman predicted more flattening of the yield curve if the market continues to be starved of supply. “I keep telling people to go out further on the yield curve and not go down in credit quality.”

The largest muni deal is scheduled to be priced by Wells Fargo on Tuesday, when the Washington Health Care Facilities Authority brings $265.895 million of bonds for the Virginia Mason Medical Center. The deal is expected to mature serially from 2025 through 2042 and is rated Baa2 by Moody’s and BBB by S&P.

Piper Jaffray is slated to price South Dakota Health and Educational Facilities Authority’s $210 million of revenue bonds for Regional Health on Tuesday. The deal is rated A1 by Moody’s and A-plus by Fitch.

Bank of America Merrill Lynch is scheduled to price the Pennsylvania Housing Finance Agency’s $207 million of single family mortgage revenue bonds featuring both alternative minimum tax and non-AMT bonds on Thursday. The deal is rated Aa2 by Moody’s and AA-plus by S&P.

The biggest competitive bond sale of the week will take place on Tuesday, when Bend La Pine School District No. 1, Ore., auctions off $175 million of general obligation bonds. The deal is backed by the Oregon School Bond Guaranty and is rated Aa1 by Moody’s and AA-plus by S&P.

Secondary market
Top shelf municipal bonds ended stronger on Friday. The yield on the 10-year benchmark muni general obligation fell one basis point to 1.91% from 1.92% on Thursday, while the 30-year GO yield declined one basis point to 2.76% from 2.77%, according to the final read of Municipal Market Data's triple-A scale.

Treasuries were little changed on Friday. The yield on the two-year Treasury rose to 1.31% from 1.30% on Thursday, the 10-year Treasury yield was flat from 2.20% and the yield on the 30-year Treasury bond was unchanged from 2.78%.

The 10-year muni-to-Treasury ratio was calculated at 87.0% on Friday, compared with 87.4% on Thursday, while the 30-year muni-to-Treasury ratio stood at 99.3% versus 99.7%, according to MMD.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended Aug. 18 were from Illinois and Florida issuers, according to Markit.

In the GO bond sector, the Chicago Board of Education 7s of 2046 were traded 25 times. In the revenue bond sector, the Miami-Dade County aviation 5s of 2040 were traded 54 times. And in the taxable bond sector, the Miami-Dade County aviation 3.982s of 2041 were traded 56 times.

Week's actively quoted issues
Puerto Rico, Ohio and Illinois names were among the most actively quoted bonds in the week ended Aug. 18, according to Markit.

On the bid side, the Puerto Rico Public Buildings Authority revenue 5.25s of 2042 were quoted by 56 unique dealers. On the ask side, the Ohio hospital revenue 3.25s of 2035 were quoted by 241 dealers. And among two-sided quotes, the Illinois state taxable 5.1s of 2033 were quoted by 30 unique dealers.

Lipper: Muni bond funds see inflows
Investors in municipal bond funds poured in cash in the latest week, according to Lipper data.

The weekly reporters saw $586.766 million of inflows in the week of Aug. 16, after inflows of $631.216 million in the previous week.

The four-week moving average was positive at $421.205 million, after being in the green at $349.152 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 $378.696 million in the latest week after inflows of $406.426 million in the previous week. Intermediate-term funds had inflows of $158.569 million after inflows of $137.827 million in the prior week.

National funds had inflows of $555.401 million after inflows of $615.734 million in the previous week. High-yield muni funds reported inflows of $185.562 million in the latest reporting week, after inflows of $148.092 million the previous week.

Exchange traded funds saw inflows of $99.484 million, after inflows of $160.401 million in the previous week.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.