Municipal bonds finished stronger on Friday, according to traders, as yields on some top-shelf maturities fell by as much as five basis points.
The market digested the week's hefty volume as it looks ahead to the upcoming week's $2.1 billion of new issues. Next week's calendar consists of about $1.5 billion of negotiated deals and over $564 million of competitive sales.
Primary Market
With the Federal Open Market Committee meeting scheduled to take place on Dec. 15 and 16 and the end of the year looming, it is no surprise that municipal bond volume would be low.
Volume for the coming week is forecast to decrease to $2.1 billion, the least since the holiday shortened Thanksgiving week, according to Ipreo, from a revised $7.49 billion that priced in the past week, according to Thomson Reuters. There are only a total of five deals that are $100 million or greater on the calendar, with three of those negotiated deals.
"Based on a 30 day supply number below $4 billion, I suspect there will be little issuance for the balance of the year, irrespective of what the Fed does," said Alan Schankel, Municipal Strategist at Janney.
Schankel believes like most analysts that the Fed will commence a hike next week. He said municipal investors seemed to have shed earlier fears of rising long-term rates, illustrated in part by the strong 10 week run of positive flows to muni mutual funds.
"Demand is strong, we are seeing this translate into municipal outperformance and falling muni to Treasury ratios," he said.
That means the few issuers who are coming to market may be rewarded with a successful sale. The largest deal next week will come from the competitive sector Tuesday, when Jacksonville, Fla., plans to sell $200.265 million of transportation refunding revenue bonds. The deal is rated A1 by Moody's Investors Service and AA-minus by Standard and Poor's and Fitch Ratings.
According to Fitch, proceeds will be used to refund a portion of the outstanding transportation revenue bonds, Series 2007, for debt service savings without extending the final maturity. The current offering will also refund the outstanding series 2008A bonds, converting the rate of interest on the bonds to fixed from variable, and fund a deposit to the debt service reserve fund (DSRF) securing the bonds.
"Net present value savings of $6.7 million are estimated on the refunding of the series 2007 bonds, equal to 9% of refunded par," said the report.
Citi is expected to price the New York Transportation Development Corp.'s $169.735 million of special facility revenue refunding bonds on Monday - the largest negotiated deal on the schedule. The terminal 1 group assessment LP project will be subject to alternative minimum tax. The deal is scheduled to mature serially from 2017-2034 and is rated Baa1 by Moody's and A-minus by Fitch.
According to the official statement, the bonds are "among other things, to refinance the construction of a new passenger terminal facility to John F. Kennedy International Airport known as terminal 1 and [pay] certain costs of issuance related to the issuance of the Series 2015 bonds."
RBC Capital Markets is expected to price Spring Independent School District in Harris Co. Tx.'s $137.965 million of unlimited tax refunding bonds, Series 2015 on Tuesday. The deal is wrapped by Permanent School Fund Guarantee Program and is rated triple-A by both Moody's and S&P.
RBC is also scheduled to price Ohio Water Development Authority's $105.680 million of water pollution control loan fund revenue refunding bonds, Series 2015B on Monday.
Barclays is slated to price Utah Housing Corporation's $100 million of single family mortgage bonds 2015, Series D on Thursday.
Secondary Market
The yield on the 10-year benchmark muni general obligation finished five basis points weaker at 1.92% from 1.97% on Thursday, while the 30-year yield fell five basis points to 2.80% from 2.85%, according to the final read of Municipal Market Data's triple-A scale.
Yields were lower on the week. On Friday, Dec. 4, the yield on the 10-year muni stood at 2.01% while the yield on the 30-year muni was at 2.96%.
U.S. Treasury bonds were stronger as the yield on the two-year decreased to 0.89% from 0.95% on Thursday while the 10-year yield dropped to 2.14% from 2.23% and the 30-year Treasury decreased to 2.88% from 2.97%.
The 10-year muni to Treasury ratio was calculated on Friday at 89.9% compared to 88.1% on Thursday, while the 30-year muni to Treasury ratio stood at 97.3% compared to 95.8%, according to MMD.
The Week's Most Actively Quoted Issues
New York & New Jersey, California, and Puerto Rico were some of the most actively quoted names in the week ended Dec. 11, according to data released by Markit.
On the bid side, the New York & New Jersey Port Authority taxable 4.81s of 2065 were quoted by 17 unique dealers. On the ask side, the California taxable 7.55s of 2039 were quoted by 15 unique dealers. And among two-sided quotes, the Puerto Rico commonwealth GO 8s of 2035 were quoted by 13 dealers, Markit said.
The Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended Dec. 11 were in South Carolina, California, and New York and New Jersey, according to Markit.
In the revenue bond sector, the South Carolina state public Service Authority 5 1/4s of 2055 were traded 95 times. In the GO bond sector, the California 5s of 2026 were traded 31 times. And in the taxable bond sector, the New York & New Jersey Port Authority taxable 4.81s of 2065 were traded 18 times, Markit said.
Municipal Bond Funds See Inflows for 10 Straight Weeks
Municipal bond funds reported inflows for the 10th straight week, according to Lipper data released on Thursday.
Weekly reporting funds experienced $741.968 million of inflows in the week ended Dec. 9, after inflows of $364.051 million in the previous week.
The latest inflow brings to 29 out of 50 weeks this year that the funds have seen cash flowing in. Flows for the year to date remain positive, totaling over $4.5 billion.
The four-week moving average remained positive at $543.721 million after being in the green at $440.603 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 also experienced inflows, gaining $249.348 million in the latest week, on top of inflows of $111.303 million in the previous week. Intermediate-term funds had inflows of $357.572 million after inflows of $290.874 million in the prior week.
National funds saw inflows of $734.578 million after inflows of $373.795 million in the prior week. High-yield muni funds reported inflows of $203.227 million in the latest reporting week, after an inflow of $122.236 million the previous week.
Exchange traded funds saw inflows of $121.669 million, after inflows of $33.226 million in the previous week.
