Wave of new muni supply should slake investors thirst for bonds
Traders said there is a multitude of offerings this week to quench investors’ thirst for bonds.
The seven largest deals that make up just under $5 billion of the calendar include a multitude of different offerings to fit their needs, according to Pete Stare of Hilltop Securities in Dallas. “This week’s calendar will certainly give buyers the opportunity to add to their holdings with a diversified number of deals that should have additional incremental yield compared to the high grade market,” he said.
Stare said investors will have plenty to choose from including deals ranging from bonds subject to the alternative minimum tax, non-AMT bonds, taxable airport revenue bonds as well as issues for a health care system, state general obligation credit, a tobacco corporation, a gas project and a port authority offering.
Other municipal analysts said demand will remain strong in conjunction with this week’s large calendar.
“The two large airport deals will benefit from the positive tailwinds the gradual growth U.S. economy continues to generate post-recession,” Alan Schankel, managing director and municipal strategist at Janney Capital Markets said Monday afternoon.
He referred to the week’s largest deal — the city and county of Denver’s $2 billion plus airport offering, which has both bonds subject to the alternative minimum tax and non- AMT bonds. In addition the aviation sector will also see Miami-Dade County’s $716.55 million revenue refunding which consists of Series 2018A AMT bonds, Series 2018B non-AMT bonds and Series 2018C taxable bonds.
Like Stare of Hilltop Securities, Schankel agreed the week’s offerings are varied and the market should be able to handle the boost in volume. “Beyond the airport sales, the range of offerings is relatively diversified and manageable,” Schankel said.
Weekly bond volume is estimated at $11.8 billion, consisting of $11.1 billion of negotiated deals and $725.7 million of competitive sales.
Bank of America Merrill Lynch is expected to price the city and county of Denver’s $2.28 billion of airport system subordinate revenue bonds on Tuesday. The offering consists of Series 2018A bonds subject to the alternative minimum tax and Series 2018B non-AMT bonds.
The deal is rated A2 by Moody’s Investors Service, A by S&P Global Ratings and A-plus by Fitch Ratings.
JPMorgan Securities is expected to price Miami-Dade County’s $716.55 million of aviation revenue refunding bonds on Wednesday after a retail order period on Tuesday. The offering consists of Series 2018A AMT bonds, Series 2018B non-AMT bonds and Series 2018C taxable bonds.
The deal is rated A by S&P and Fitch and AA-minus by Kroll Bond Rating Agency.
Also on tap, Siebert Cisneros Shank & Co. is expected to price Connecticut’s $889.135 million of general obligation bonds on Wednesday after a retail order period on Tuesday. The issue consists of Series 2018E GOs, Series 2018F refunding GOs, Series 2018A taxable GOs.
The deal is rated A1 by Moody’s, A by S&P, A-plus by Fitch and AA-minus by Kroll.
Piper Jaffray is expected to price the Denton Independent School District, Texas’ $397.55 million of Series 2018 unlimited tax school building bonds on Tuesday.
The deal, backed by the Permanent School Fund guarantee program, is rated AAA by S&P and Fitch.
While the municipal bond market will see almost $12 billion of new deals price this week in the biggest supply surge of 2018, but even with this influx, volume this year still lags behind 2017.
“Issuance for the year-to-date [as of Aug. 9] was $200.4 billion, down 16.7% compared to the same period last year,” Bank of America Merrill Lynch said in a market comment Monday. “28.3% of the total issuance for the year-to-date has been related to total refundings, compared to 53% during the same period last year.”
Bond Buyer 30-day visible supply at $16.32B
The Bond Buyer's 30-day visible supply calendar increased $253.7 million to $16.32 billion for Monday. The total is comprised of $2.57 billion of competitive sales and $13.75 billion of negotiated deals.
Prior week's top underwriters
The top municipal bond underwriters of last week included RBC Capital Markets, Bank of America Merrill Lynch, Piper Jaffray, Morgan Stanley and Citigroup, according to Thomson Reuters data.
In the week of Aug. 5 to Aug. 11, RBC underwrote $1.1 billion, BAML $854.3 million, Piper Jaffray $694.4 million, Morgan Stanley $641.2 million, and Citi $628.8.2 million.
Municipal bonds were little changed on Monday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell less than a basis point in the one-year, six- to nine-year, 14- to 16-year and 29- and 30-year maturities while yields rose less than a basis point in the two- to five-year, 11- and 12-year and 18- to 27 year maturities and remained unchanged in the 10-year, 13-year, 17-year and 28-year maturities.
High-grade munis were mixed, with yields calculated on MBIS’ AAA scale falling less than a basis point in the seven to nine-year, 14- to 16-year and 26- to 30-year maturities while yields rose less than a basis point in the one- to five-year, 11- and 12-year and 19- to 23 year maturities and remained unchanged in the sixe-year, 10-year, 13-year, 17-year and 24-year maturities.
Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the yield on the 30-year muni maturity remaining unchanged.
Treasury bonds were stronger as stock prices traded lower.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 85.2% while the 30-year muni-to-Treasury ratio stood at 99.9%, 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.
Previous session's activity
The Municipal Securities Rulemaking Board reported 32,154 trades on Thursday on volume of $10.897 billion.
California, New York and Texas were the municipalities with the most trades, with Golden State taking 15.73% of the market, the Empire State taking 15.314%, and the Lone Star State taking 10.616%.
Prior week's actively traded issues
Revenue bonds comprised 55.49% of new issuance in the week ended Aug. 10, up from 55.36% in the previous week, according to Markit. General obligation bonds made up 38.22% of total issuance, down from 38.69%, while taxable bonds accounted for 6.29%, up from 5.95% a week earlier.
Some of the most actively traded munis by type in the week were from Puerto Rico, California and Connecticut issuers.
In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 79 times. In the revenue bond sector, the California Statewide Communities Development Authority 5.5s of 2058 traded 74 times. And in the taxable bond sector, the New Haven, Conn., 4.834s of 2033 traded 22 times.
Prior week's top FAs
The top municipal financial advisors of last week included Public Resources Advisory Group, Hilltop Securities, PFM Financial Advisors, Kaufman Hall & Associates and Lancaster Pollard, according to Thomson Reuters data.
In the week of Aug. 5 to Aug. 11, PRAG advised on $792.4 million, Hilltop $754.9 million, PFM $729.3 million, Kaufman $487.9 million, and Lancaster $399.8 million.
Treasury auctions discount rate bills
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were mixed, as the three-months incurred a 2.030% high rate, up from 2.010% the prior week, and the six-months incurred a 2.180% high rate, unchanged from 2.180% the week before.
Coupon equivalents were 2.069% and 2.235%, respectively. The price for the 91s was 99.486861 and that for the 182s was 98.897889.
The median bid on the 91s was 2.010%. The low bid was 1.980%. Tenders at the high rate were allotted 66.21%. The bid-to-cover ratio was 2.83.
The median bid for the 182s was 2.170%. The low bid was 2.140%. Tenders at the high rate were allotted 92.51%. The bid-to-cover ratio was 3.25.
Treasury to sell $70B 4-week bills
The Treasury Department said it will sell $70 billion of four-week discount bills Tuesday. There are currently $113.000 billion of four-week bills outstanding.
Gary Siegel contributed to this report.
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.