TWBD’s $1.6B deal highlights muted muni slate
The municipal bond market will be ready and waiting for the $7 billion of new issuance in the coming week, including the first billion dollar negotiated bond deal since Aug. 14.
Ipreo estimates volume will inch up to $7.05 billion, from the revised total of $6.94 billion sold in the past week, according to updated figures from Thomson Reuters. The calendar for the week ahead is composed of $5.28 billion of negotiated deals and $1.77 billion in competitive sales.
“It will be a struggle to get much above $350 million this year,” said Jim Colby, senior municipal strategist and portfolio manager at Van Eck. “Looking out over the next two, three, four weeks, there are only two nicely sized issues – the others are significantly smaller. Although the forward calendar does over nice variety, if you are looking to diversify.”
Colby said muted issuance means investors face low muni to Treasury ratios and spread contractions, and there is nothing that is going to change that anytime soon.
“We don’t have enough supply to stabilize demand and allow curves to reform and shift towards more normalized levels,” he said. “I am not sure what exactly the catalyst for change will be or when it will occur, but it take some sort of social-political event that will turn things around.”
Citi is slated to price the Texas Water Development Board’s $1.63 billion of State Water Implementation Revenue Fund for Texas bonds and taxable bonds on Tuesday, after a one day retail order period on Monday. The deal carries a top ratings from both S&P Global Ratings and Fitch Ratings.
Wells Fargo is scheduled to price Colorado’s $500 million of rural Colorado certificates of participation on Thursday. The deal is rated Aa2 by Moody’s Investors Service and AA-minus by S&P.
The biggest competitive sale of the week will take place on Tuesday, when the Maryland Department of Transportation sells $605.355 million of consolidated transportation bonds, which are rated AA1 by Moody’s, triple-A by S&P and AA-plus by Fitch.
Municipal bonds were weaker on Friday, according to a late read of the MBIS benchmark scale. Benchmark muni yields rose as much as one basis point in all 30 maturities.
High-grade munis were mostly weaker, with yields calculated on MBIS' AAA scale rising as much as one basis point in 28 maturities, with the exceptions being the eight-and-nine-year maturities which were lower by less than a basis point.
Municipals were weaker on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on 30-year muni maturity rising by two basis points.
On Friday, the 10-year muni-to-Treasury ratio was calculated at 84.4% while the 30-year muni-to-Treasury ratio stood at 101.5%, according to MMD. The muni-to-Treasury ratio compares the yield of tax-exempt municipal bonds with the yield of taxable U.S. Treasury with comparable maturities. If the muni/Treasury ratio is above 100%, munis are yielding more than Treasury; if it is below 100%, munis are yielding less.
Prior to the new slate hitting screens, traders reflected on strong support for the primary market this week, but said the market is still struggling with supply and liquidity in the secondary market.
“Yesterday we saw a fairly active day of robust trading,” a New York municipal manager said of Thursday’s market. “What a difference a day makes,” he said, adding that Friday morning felt like a lazy summer Friday as trade activity slowed and market participation waned.
“Volume has been light and liquidity seems poor,” said Brad Taylor, a partner at NatAlliance Capital Markets in Austin, Texas, on Friday.
“There has been a somber tone amongst the secondary participants that I have spoken with this week,” he said. “I think there is a real wait-and-see approach with regards to the outcome of trade, the Fed, economic indicators and the direction of rates.”
He noted that the mood was reflected in the rise of the 10-year benchmark Treasury yield on Friday morning, which reached a six-week high as it rose to 2.987% — closer to the 3% threshold.
Week's actively traded issues
Some of the most actively traded munis by type in the week ended Sept. 14 were from California, Texas and Puerto Rico issuers, according to Markit.
In the GO bond sector, the California 5s of 2028 traded 21 times. In the revenue bond sector, the Texas 4s of 2019 traded 94 times. And in the taxable bond sector, the Puerto Rico Government Development Bank 5s of 2023 traded 17 times.
Week's actively quoted issues
Illinois, Ohio and California names were among the most actively quoted bonds in the week ended Sept. 14, according to Markit.
On the bid side, the Illinois taxable 5.877s of 2019 were quoted by 25 unique dealers. On the ask side, the Reynoldsburg, Ohio GO 3.6s of 2048 were quoted by 243 dealers. And among two-sided quotes, the California taxable 7.5s of 2034 were quoted by 27 dealers.
Lipper: Muni bond funds saw outflows
Investors in municipal bond funds remained cautious and again took cash out of the funds during the latest reporting week, according to Lipper data released on Thursday.
The weekly reporters saw $136.494 million of outflows in the week ended Sept. 12, after outflows of $181.441 million in the previous week.
Exchange traded funds reported outflows of $236.814 million, after outflows of $43.094 million in the previous week. Ex-ETFs, muni funds saw $100.319 million of inflows, after outflows of $138.348 million in the previous week.
The four-week moving average remained positive at $68.122 million, after being in the green at $215.252 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 $121.885 million in the latest week after outflows of $127.634 million in the previous week. Intermediate-term funds had inflows of $81.138 million after inflows of $4.958 million in the prior week.
National funds had outflows of $106.754 million after outflows of $124.108 million in the previous week. High-yield muni funds reported inflows of $160.042 million in the latest week, after inflows of $15.431 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 Ziad Saba at 212-803-6079 for more information.