The bonds of summer: Last week of August to see $6.2B of municipal deals

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As summer nears its unofficial end and the weather cools down, the municipal bond market is still providing some heat as it gears up to welcome over $6 billion of new securities into the market.

Primary market
IHS Markit Ipreo forecasts weekly bond volume will rise to $6.2 billion from a revised total of $5.10 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $3.7 billion of negotiated deals and $2.5 billion of competitive sales.

Atlanta, Georgia, (Aa3/AA-/AA-) tops the negotiated slate with a $687 million offering of airport general revenue bonds.

BofA Securities is expected to price on Tuesday the Series 2019A bonds not subject to the alternative minimum tax, Series 2019B AMT bonds, Series 2019C non-AMT subordinate lien bonds and Series 2019D AMT subordinate lien bonds.

PNC Capital Markets, Ramirez & Co., Mesirow Financial, Rice Financial Products, Security Capital and UBS are co-managers. Frasca & Associates is the financial advisor; Hunton Andrews Kurth and the Kendall Law Firm are the bond counsel.

BofA is also slated to price Massachusetts' (Aa1/AA/AA+) $441.23 million of Series 2019D taxable general obligation refunding bonds on Monday.

Citigroup, Goldman Sachs, Jefferies, JPMorgan Securities, Morgan Stanley, RBC Capital Markets, Siebert Cisneros Shank and Wells Fargo Securities are co-managers. PFM is the financial advisor; Mintz is the bond counsel.

The state is also competitively selling $189.635 million of Series 2019E tax-exempt GO refunding bonds on Tuesday. Omnicap Group is the financial advisor; Locke Lord is the bond counsel.

Also in the competitive arena, the University of Alabama (NR/NR/NR) is selling $455.745 million of general revenue bonds in three offerings.

The deals consists of $369.05 million of Series 2019A bonds, $72.535 million of Series 2019C bonds and $14.16 million of Series 2019B bonds. Raymond James & Associates is the financial advisor; Maynard Cooper is the bond counsel.

The Series A bonds will current refund outstanding Series 2009A bonds and to finance capital improvements; the Series C bonds will advance refund some outstanding Series 2010C bonds; the Series B bonds will current refund outstanding Series 2009A bonds and finance some capital improvements.

The Miami-Dade County School District, Florida, (MIG1/NR/NR) is selling $400 million of Series 2019 tax anticipation notes on Tuesday. PFM Financial Advisors is the financial advisor; Greenberg Traurig is the bond counsel.

Ohio (NR/AA+/NR) is selling $300 million of Series 2019A common schools GOs on Tuesday. PFM Financial Advisors is the financial advisor; Ice Miller and Squire Patton is the bond counsel. Proceeds will be used for capital facilities for a system of common schools.

Sustained performance, strong demand
The pre-Labor Day forecast in the municipal market isn’t all stormy — even though municipal issuance is expected to be fairly light over the next two weeks, according to Jeffrey Lipton, managing director and head of municipal research and fixed income research at Oppenheimer & Co.

The supply lull will arrive after tax-exempt bond prices have moved directionally with U.S. Treasuries year to date, as “unique” market technicals drove much of the municipal performance, according to Lipton in a report this week.
Despite a recent blip in new volume, muni performance sustained its strength, he noted, as various offerings were bumped in price and well-subscribed. Looking forward, Lipton said muni demand will hold strong, particularly if volatility continues to grip the risk markets through year-end. “At the risk of sounding like a broken record, the muni asset class can provide relative comfort during uncertain times when capital preservation seems to be the overriding investment driver,” he wrote.

Lipton said demand outweighs supply, rich valuations, particularly for shorter-dated maturities when compared to U.S. Treasuries, are present. “There doesn’t seem to be any push-back given the strong flow activity into municipal bond funds,” with the lack of intermittent outflows originally expected would accompany rich levels, Lipton added.

The “wild ride” in municipals has yet to create sticker shock among investors, he said. At the same time, he said investors who are less duration-sensitive, moving out along the curve may allow them to capture better value. Lipton suggested seven to 15-year maturities as this range is not fully valued.

The one- to five-year maturities show tax-exempts currently rich on both a three-month average and a year over year basis relative to Treasuries, when using the MMD relative value analysis, Lipton noted.

Currently, the five-year municipal to Treasury ratio stands at about 65% — with earlier maturities substantially richer — versus 69% for the three-month average and 72% for the year-over-year average, Lipton noted. Meanwhile, the 10-year municipal to Treasury ratio currently is 77%, and is closer to the three-month average of 78% and the year-over-year average 80%.

Lipper: More inflows into muni funds
For 33 straight weeks investors have poured cash into municipal bond funds, according to the latest data released by Refinitiv Lipper on Thursday.

Tax-exempt mutual funds that report weekly received $1.562 billion of inflows in the week ended Aug. 21 after inflows of $1.625 billion in the previous week.
Exchange-traded muni funds reported inflows of $208.725 million after inflows of $123.725 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.353 billion after inflows of $1.502 billion in the previous week.

The four-week moving average remained positive at $1.493 billion, after being in the green at $1.592 billion in the previous week.

Long-term muni bond funds had inflows of $1.080 billion in the latest week after inflows of $959.453 million in the previous week. Intermediate-term funds had inflows of $304.494 million after inflows of $331.650 million in the prior week.

National funds had inflows of $1.356 billion after inflows of $1.4451 billion in the previous week. High-yield muni funds reported inflows of $479.355 million in the latest week, after inflows of $383.715 million the previous week.

On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.888 billion in the week ended Aug. 14, while long-term muni funds alone saw an inflow of $1.632 billion and ETF muni funds saw an inflow of $255 million.

Secondary market
Munis were mixed in late trade on the MBIS benchmark scale, with yields falling one basis point in the 10-year maturity while rising less than a basis point in the 30-year maturity. High-grades were stronger, with MBIS’ AAA scale showing yields falling by one basis point in the 10-year maturity and by less than a basis point in the 30-year maturity.

On Refinitiv Municipal Market Data’s AAA benchmark scale, the 10-year muni GO yield fell two basis points to 1.24% as the 30-year yield decreased two basis points to 1.89%.

The 10-year muni-to-Treasury ratio was calculated at 81.3% while the 30-year muni-to-Treasury ratio stood at 93.5%, according to MMD.

Treasuries were stronger as stocks traded sharply lower. The Treasury three-month was yielding 1.961%, the two-year was yielding 1.515%, the five-year was yielding 1.399%, the 10-year was yielding 1.520% and the 30-year was yielding 2.013%.
Previous session's activity
The MSRB reported 33,118 trades Thursday on volume of $10.86 billion. The 30-day average trade summary showed on a par amount basis of $11.20 million that customers bought $5.83 million, customers sold $3.30 million and interdealer trades totaled $2.07 million.

Texas, California and New York were most traded, with the Lone Star State taking 14.136% of the market, the Golden State taking 14.071% and the Empire State taking 10.502%.

The most actively traded security was the Texas 2019 TRANs 4s of 2020, which traded 107 times on volume of $144.42 million.

Week's actively traded issues
Some of the most actively traded munis by type in the week ended Aug. 23 were from Texas issuers, according to IHS Markit.

In the GO bond sector, the Port Arthur Independent School District 4s of 2044 traded 18 times. In the revenue bond sector, the Texas TRANs 4s of 2020 traded 333 times. In the taxable bond sector, the Houston 2.984s of 2042 traded 34 times.

Week's actively quoted issues
Puerto Rico and Colorado names were among the most actively quoted bonds in the week ended Aug. 23, according to IHS Markit.
On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5s of 2058 were quoted by 37 unique dealers. On the ask side, the Colorado Health Facilities Authority revenue 3.25s of 2049 were quoted by 170 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 13 dealers.

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.

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Primary bond market Secondary bond market Municipal bond funds State of California State of Texas State of New York Commonwealth of Massachusetts Puerto Rico Sales Tax Financing Corp (COFINA) City of Houston, TX Colorado Health Facilities Authority City of Atlanta, GA University of Alabama Miami-Dade County School Board
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