Municipal bond traders are keeping a wary eye on the stock and Treasury markets on Monday as traders prepare for the start of a week that will see $8.33 billion of new deals, highlighted by offerings from two stressed issuers in the Land of Lincoln.
Secondary Market
U.S. stocks were moving higher on Monday and Treasuries weakened even as Chinese equities continued on their recent downward spiral.
The yield on the two-year Treasury rose to 0.96% from 0.94% on Friday, while the 10-year Treasury yield increased to 2.16% from 2.13% and the 30-year Treasury bond yield gained to 2.96% from 2.92%.
In early trading the Dow Jones Industrial Average rose about 100 points, the Nasdaq Composite Index increased by around 350 and the S&P 500 Index was up by almost 15.
On Friday, top-rated municipal bonds finished steady to weaker. The yield on the 10-year benchmark muni general obligation was unchanged from 1.75% on Thursday, while the 30-year muni yield rose one basis point to 2.70% from 2.69%, according to the final read of Municipal Market Data's triple-A scale.
On the week muni yields were sharply lower. On Thursday, Dec. 31, 2015, the yield on the 10-year muni stood at 1.92% and the 20-year muni was yielding 2.82%.
The 10-year muni to Treasury ratio was calculated on Friday at 82.2% compared with 81.3% on Thursday, while the 30-year muni to Treasury ratio stood at 92.5% versus 91.9%, according to MMD.
MSRB Previous Session's Activity
The Municipal Securities Rulemaking Board reported 33,691 trades on Friday on volume of $10.15 billion.
Primary Market
There are about $6.28 billion of negotiated deals on the calendar for this week along with $2.06 billion of competitive sales.
But most of the attention is focused on just two offerings – one from the city of Chicago and one from the state of Illinois.
Chicago is offering $500 million of general obligation debt. The issue will consist of $498.14 million of Series 2015C tax-exempt GO refunding bonds and $1.86 million of Series 2015D taxable GO refunding bonds. Citigroup is expected to price the bonds on Tuesday after holding a one-day retail order period on Monday.
The issue is rated triple-B-plus by Standard & Poor's and Fitch Ratings and A-minus by Kroll Bond Rating Agency.
Traders have seen Chicago bonds recently trading in the secondary at about 240 to 250 basis points over the triple-A 20-year maturity on the MMD scale.
On Thursday, Illinois will competitively sell $480 million of Series of 2016 GOs. The bonds are rated Baa1 by Moody's Investors Service, A-minus by S&P and triple-B-plus by Fitch.
On the higher-rated side, the Illinois Regional Transportation Authority on Wednesday will competitively sell $100 million of Series 2016A GOs. This issue is rated Aa3 by Moody's and AA by S&P and Fitch.
Elsewhere, the Trinity Health Credit Group will be coming to market with a $568 million composite offering with bonds coming from four different issuers.
The deal consists of the Michigan Finance Authority's Series hospital revenue and refunding bonds; the Connecticut Health and Educational Facilities Authority's revenue bonds; the Idaho Health Facilities Authority's Series revenue bonds; and Montgomery County, Md.'s Series revenue bonds.
The issue is expected to be priced by Bank of America Merrill Lynch on Tuesday after a one-day retail order period. The bonds are rated Aa2 by Moody's, AA-minus by S&P and AA by Fitch.
The California Health Facilities Financing Authority will be offering $500 million of Series 2016A revenue bonds for Sutter Health. The deal, which is rated Aa3 by Moody's and AA-minus by S&P and Fitch, is expected to be priced by Morgan Stanley on Wednesday.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar rose $60.3 million to $13.20 billion on Monday. The total is comprised of $5.15 billion competitive sales and $8.05 billion of negotiated deals.
Last Week's Most Active Sectors
Revenue bonds comprised 56.02% of new issuance in the week ended Jan. 8, up from 54.71% in the previous week, according to Markit. General obligation bonds comprised 36.76% of total issuance, down from 37.60%, while taxable bonds made up 7.22%, down from 7.68%.
Some of the most actively traded issues by type were in California, New Jersey and Texas.
In the GO bond sector, the California 5s of 2026 traded 34 times. In the revenue bond sector, the New Jersey State Transportation Trust Fund Authority 5s of 2045 traded 46 times. And in the taxable bond sector, the University of Texas 3.852s of 2046 traded 21 times.
