Municipal bond buyers saw a last wave of new supply flow into the market on Thursday. For the ninth week in a row, investors put cash into municipal bond funds as Refinitiv Lipper reported $1.02 billion inflow into the funds in the week ended July 8.
Munis remained stronger in light trading activity as buyers eyed the primary slate.
New-issue pricings remain the focus of the market with the secondary taking a back seat as investors digest a diverse set of new deals.
“The market remains more focused on new issue pricings, causing secondary volumes to take a back seat,” according to Kim Olsan, senior vice president at FHN Financial. “Total flows failed to reach $5 billion again [on Wednesday] and generic yields held steady amidst more than 30 unique syndicate deals that priced.”
She said that outside of the high-yield sector, July’s heavy reinvestment was seeing issuance of every type being offered.-
“Competitive sales from AAA Chesterfield County VA (10-year maturity bought +6/AAA), Aa1/AA Las Vegas NV LT GOs (bought on a tighter +18/AAA) and Aa3/AA- Fayette County KY Schools (10-year bought as 4s spread +51/AAA) proved strong demand with minimal balances being reported,” she said.
“Negotiated results are showing how deep inquiry is in specialty-state credits: Aa2/AAA San Diego Waters priced with a forward settle of February 2021 offered a tight spread of +21/AAA in the 2030 maturity,” she said, adding “Likewise, California’s University System $790 million tax-exempt series priced for retail orders at a flat yield to the implied 10-year AAA benchmark.”
Meanwhile, Olsan noted that volume has grown substantially this year as compared to 2019, due mainly to issuance coming in as taxable debt. So far in 2020, $20.7 billion has priced in the sector (deals over $25 million), with $12.2 billion in taxable munis.
In the same period last year, just $1.8 billion had been priced in taxable bonds. The average taxable deal size has grown from $156 million in 2019 to this year’s $255 million, while tax-exempt deal sizes have moved to just $110 million from $99 million.
She also noted that current spreads show the market’s commitment to higher education, even as it is becoming clearer that many universities will not have an in-person semester this fall and the Ivys already canceled most sporting events. Even so, 10-year BVAL spreads are currently +24/AAA vs. +50/AAA last July, she said.
Primary market
JPMorgan Securities priced the Regents of the University of California’s (Aa2/AA/AA/NR) $2.6 billion of tax-exempt and taxable revenue bonds.
The issue was composed of $790.45 million of tax-exempt Series BE, $1.5 billion of taxable Series BG and $323.335 million of taxable Series BF.
The $790.45 million of tax-exempt Series 2020BE bonds were priced to yield from 0.15% with a 5% coupon in 2021 to 1.69% with a 5% coupon in 2043. A 2047 term bond was priced to yield 2.00% with a 4% coupon and a 2050 term was priced at par to yield 2.50%.
The Series 2020BE bonds had been priced on Wednesday for retail to yield from 0.17% with a 5% coupon in 2021 to 1.74% with a 4% coupon in 2040. A 2046 term bond was priced to yield 1.94% with a 4% coupon and a 2050 term was priced to yield 2.26% with a 3% coupon.
JPMorgan also priced the Series 2020BG and Series 2020BF taxables.
The Series 2020BG taxables were priced to yield 60 basis points over the comparable Treasury security in 2025, 85 basis points over the comparable Treasury in 2027 and 100 basis points over the comparable Treasury in 2030.
Citigroup priced the District of Columbia’s (Aa1/AAA/AA+/NR) $607 million of tax-exempt and taxable income tax secured revenue bonds.
The $396.76 million of tax-exempt Series 2020C bonds were priced to yield from 0.30% with a 5% coupon in 2022 to 1.81% with a 4% coupon in 2040; a split 2045 maturity was priced to yield 1.96% with a 4% coupon and to yield 1.75% with a 5% coupon.
Wells Fargo Securities priced Wisconsin’s (NR/AA+/AA+/AAA) $314.895 million of taxable Series 2020-1 transportation revenue refunding bonds.
The bonds were priced at par to yield from 0.301% in 2022 to 1.859% in 2034.
BofA Securities priced the Maryland Stadium Authority’s (Aa3/AA-/AA/NR) $525.105 million of tax-exempt and taxable revenue bonds for the Baltimore City Public Schools Construction and Revitalization Program.
The $194.59 million of Series 2020A bonds were priced to yield 2.56% with a 5% coupon in 2050. The $33.29 million of Series 2020B green bonds were priced to yield 2.53% with a 5% coupon in 2047. The $297.225 million of Series 2020C taxables were priced at par to yield 0.801% in 2021 to 2.357% in 2035, 2.805 in 2040, 2.905% in 2044 and 2.955% in 2046.
BofA also priced the Public Finance Authority’s (A3/A/NR/NR) $107.96 million of health care facilities revenue and refunding revenue bonds for Blue Ridge Healthcare.
The bonds were priced to yield from 0.73% with a 5% coupon in 2021 to 2.46% with a 5% coupon in 2040. A 2045 term bond was priced to yield 2.71% with a 4% coupon and a 2050 term was priced to yield 3.12% with a 3% coupon.
JPMorgan priced the JEA’s $224.92 million of revenue bonds.
The $132.355 million of Series Three 2020A (A2/A+/AA/NR) electric system revenue bonds wwre priced to yield from 0.89% with a 5% coupon in 2026 to 2.38% with a 3% coupon in 2041. The $92.565 million of Series 2020A (A3/A/AA/NR) electric system subordinated revenue bonds were priced to yield from 1.28% with a 5% coupon in 2028 to 2.13% with a 4% coupon in 2038.
Barclays Capital priced Howard University’s $209.085 million of corporate CUSIP taxable bonds. The deal was insured by Assured Guaranty Municipal.
RBC Capital Markets received the official award on the Tacoma School District No. 1, Pierce County, Wash.'s (Aaa/AA+/NR/NR) $366.01 million of taxable unlimited tax general obligation refunding bonds. The deal is backed by the Washington state credit enhancement program.
In the competitive arena, St. Louis County, Mo., (Aaa/AA/AAA) sold $115.35 million of bonds in two offerings.
Mesirow Financial won the $101.655 million of tax-exempt special obligation refunding bonds with a true interest cost of 1.5398%. The bonds were priced to yield from 0.20% with a 5% coupon in 202 to 1.90% with a 2% coupon in 2035.
Robert W. Baird won the $13.695 million of taxable special obligation bonds with a TIC of 2.3801%.
Columbia Capital Management was the financial advisor; Gilmore & Bell was the financial advisor.
CUSIP: New requests rise in June
Municipal CUSIP request volume increased in June for the third month in a row, according to CUSIP Global Services.
The aggregate total of all municipal securities — including municipal bonds, long-term and short-term notes and commercial paper — rose 14.7% to 1,760 from 1,534 in May. June’s gain came on top of a 53.1% increase in May.
On an annualized basis, municipal CUSIP identifier request volumes are up 7.6% to 7,345 through June compared to 6,825 in the same period in 2019.
For municipal bonds alone, CUSIP requests in June rose 23.1% to 1,405 from 1,141 in May; they are up 11.2% to 6,016 on an annualized basis from 5,411 in the same period last year.
“We’ve been seeing continued signs of healthy liquidity in the municipal bond market for three straight months now, which is a clear indication that municipal borrowers are entering the market in a big way,” said Gerard Faulkner, director of operations for CGS.
Among top state issuers, New York, Texas and California were the most active. New York's total increased by more than 92% month over month. Pennsylvania and Wisconsin round out June's top five.
Money market muni funds rise $309M
Tax-exempt municipal money market fund assets rose $308.5 million, bringing total net assets to $130.09 billion in the week ended July 6, according to the Money Fund Report, a publication of Informa Financial Intelligence.
The average seven-day simple yield for the 187 tax-free and municipal money-market funds dipped to 0.02% from 0.03% in the previous week.
Taxable money-fund assets increased $31.64 billion in the week ended July 7, bringing total net assets to $4.475 trillion.
The average, seven-day simple yield for the 792 taxable reporting funds remained at 0.06% from the prior week.
Overall, the combined total net assets of the 979 reporting money funds rose $31.95 billion to $4.605 trillion in the week ended July 7.
Secondary market
In secondary trading, there was a continuation of “an impressive Texas PSF-backed rally, with several prints showing spreads through +10/AAA in short and intermediate maturities,” FHN's Olsan said. “It’s possible July’s influx of money and a slowing of PSF new issues has caused buyers to push tighter spreads for what are generally AA-rated underlying credits from Texas schools.”
Short readings on MMD’s AAA benchmark scale were unchanged on Thursday while longer-dated munis strengthened. Yields on the 2021 and 2023 maturities were steady at 0.25% and 0.27%, respectively. The yield on the 10-year GO muni fell three basis points to 0.85% while the 30-year yield dropped four basis points to 1.57%.
The 10-year muni-to-Treasury ratio was calculated at 140.5% while the 30-year muni-to-Treasury ratio stood at 120.0%, according to MMD.
The ICE AAA municipal yield curve showed short yields steady at 0.220% and 0.229% in 2021 and 2022, respectively, while the 10-year maturity dropped two basis points to 0.815% and the 30-year fell four basis points to 1.592%.
ICE reported the 10-year muni-to-Treasury ratio stood at 145% while the 30-year ratio was at 119%.
BVAL reported unchanged levels on the one-year at 0.19%, while the two-year fell one basis point to 0.23%, the 10-year landed at 0.81%, down three basis points, while the 30-year was lower by three as well at 1.60%.
The IHS Markit municipal analytics AAA curve showed the 2021 maturity yielding 0.23% and the 2022 maturity at 0.26% while the 10-year muni was at 0.86% and the 30-year stood at 1.59%.
Munis were little changed on the MBIS benchmark and AAA scales.
Treasuries were stronger as stock prices traded mixed.
The three-month Treasury note was yielding 0.140%, the 10-year Treasury was yielding 0.601% and the 30-year Treasury was yielding 1.312%.
The Dow fell 1.17%, the S&P 500 decreased 0.40% and the Nasdaq gained 0.60%.
