Thanks to tax reform and FOMC, munis to see insufficient issuance of $2.94B

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After back-to-back weeks of average volume, the primary muni market will get a reality check as weekly issuance falls below $3 billion, thanks mostly to continued tax reform fallout.

Ipreo estimates volume will fade to $2.94 billion, from the revised total of $5 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $1.71 billion of negotiated deals and $1.23 billion in competitive sales.
The drop in issuance comes on the heels of back to back weeks of normal volume. Prospects of improvement are dim for the following week, shortened by the Good Friday holiday.

Jim Grabovac, senior portfolio manager at McDonnell Investment Management, said most of the blame for the sudden drought of volume to the ripple effects of the surge in deals ahead of the new tax law.

“We expected the primary market to feel the burn for most of the first half of the year,” he said. “Although we are not surprised, we did not think it would be this painful. It is hard to expect a meaningful pick of supply until the middle of the second quarter at least.”

Grabovac said there might be a blip here and there, but big weeks will be few and far between. He also said that the Fed meeting may be a contributing factor, since issuers hate coming to market around Federal Open Market Committee meetings.

“We will be reading the tea leaves after the two-day Fed meeting,” Grabovac said. “It would be surprising if they indicated increased hawkishness with the new chair’s initial meeting. We don’t see any reason [for the Fed] to get overly aggressive, as the bond market is in good shape as is the equity market. Including next week, we see three hikes this year.”

Although the calendar doesn't offer the big deals or big names sought by some investors, Grabovac says the deals will find buyers.

“There should be strong demand, given the dearth of supply,” he said. “Investors have to take anything they can get. In this environment; Demand should be steady and strong, particularly given how attractive market has gotten- with a 50 basis point sell off and ratios on the long end very attractive versus Treasuries and taxables.”

There are six sales scheduled of $100 million or larger, with four of those on the negotiated side.

Bank of America Merrill Lynch is scheduled to price the School District of Philadelphia’s $251 million of general obligation bonds on Thursday. The deal is expected to mature serially from 2018 through 2038, with a term bond in 2043. The deal will be backed by the Pennsylvania state aid intercept program and is rated A2 by Moody’s Investors Service and A-plus by Fitch Ratings.

Ramirez is slated to price the Los Angeles Department of Airport’s $230.465 million of senior refunding revenue bonds for LAX airport on Wednesday. The deal is rated Aa3 by Moody’s, AA by S&P Global Ratings and Fitch.

In the competitive arena, Anne Arundel County, Md., is set to sell $263.655 million of GO consolidated general improvement and water and sewer bonds on Tuesday. The deal is rated Aa1 by Moody’s and AAA by S&P.

Also, the City and County of San Francisco will sell $251.345 million of GO clean and safe neighborhood park and transportation and road improvement bonds also on Tuesday. The deal is rated Aaa by Moody’s and AA-plus by S&P and Fitch.

Week's actively traded issues
Some of the most actively traded bonds by type in the week ended March 16 were from California, Oklahoma and Colorado issuers, according to Markit.

In the GO bond sector, the California 3.625s of 2047 traded 48 times. In the revenue bond sector, the Oklahoma Development Financing Authority 4.125s of 2057 traded 28 times. And in the taxable bond sector, the Colorado 4.047s of 2038 traded 14 times.

Week's actively quoted issues
Puerto Rico and California names were among the most actively quoted bonds in the week ended March 16, according to Markit.

On the bid side, the Puerto Rico Commonwealth GO 5.75s of 2037 were quoted by 36 unique dealers. On the ask side, the California GO 3.625s of 2047 were quoted by 350 dealers. And among two-sided quotes, the Puerto Rico Commonwealth GO 8s of 2035 were quoted by 23 unique dealers.

Previous session's activity
The Municipal Securities Rulemaking Board reported 43,166 trades on Thursday on volume of $13.688 billion.

California, Texas and New York were the states with the most trades, with the Golden State taking 15.388% of the market, the Empire State taking 11.106% and the Lone Star State taking 9.711%.

Lipper: Muni bond funds saw inflows
Investors in municipal bond funds once again put cash into the funds in the latest week, according to Lipper data released on Thursday.
The weekly reporters saw $339.142 million of inflows in the week of March 14, after inflows of $406.753 million in the previous week.

Exchange traded funds reported inflows of $76.237 million, after outflows of $97.946 million in the previous week. Ex-ETFs, muni funds saw $262.905 million of inflows, after inflows of $504.699 million in the previous week.

The four-week moving average turned positive at $125.589 million, after being in the red at -$70.049 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 $181.790 million in the latest week after inflows of $218.275 million in the previous week. Intermediate-term funds had inflows of $152.733 million after inflows of $201.010 million in the prior week.

National funds had inflows of $356.119 million after inflows of $383.340 million in the previous week. High-yield muni funds reported inflows of $110.948 million in the latest week, after inflows of $127.660 million the previous week.

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 Sell side Secondary bond market Municipal bond funds Tax reform Interest rates School District of Philadelphia Los Angeles Department of Airports County of Anne Arundel, MD City and County of San Francisco, CA Oklahoma Development Finance Authority State of California State of Colorado Commonwealth of Puerto Rico