What Fed change in household data reporting means for muni market

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Municipals were stronger with Treasuries on Tuesday as the New York Metropolitan Transportation Authority sold a big note deal.

Muni ownership: Fed re-writes history
The quarterly Flow of Funds Report from the Federal Reserve has long been relied on as the authoritative source of data showing the total size of the municipal bond market and the amounts owned by different types of investors.

With their latest release, the Fed is now estimating household ownership of munis at market value instead of book or face value and has restated historical ownership beginning with year-end 1996. The change in methodology is to continue their efforts at reporting all holdings data at market value. All of the major categories of ownership are now reported based on market values.

As a result, it is no longer possible to attribute with precision how much of the change in household ownership is due to buying or selling as opposed to changes in valuation, according to Patrick Luby Senior Municipal Strategist at CreditSights.
“Nevertheless, we find the trends to be helpful in estimating the relative levels of interest across investor types and brings the household methodology in line with the reporting of the other major investor categories,” he said.

Looking at the data, Luby noted that changes in institutional exposure to municipals was mixed in the quarter, with bank ownership declining while it appears that Property & Casualty insurance companies were net buyers.

“Non-U.S. investors, who were significant buyers in 2017 reduced their exposure in the fourth quarter and were up only slightly for the year,” Luby said. “Households are still the largest category of municipal bond owners, which includes not only direct ownership of bonds by individual investors but also individual bonds in separately managed accounts (SMAs) as well as ownership by hedge funds and non-profit organizations (which should be close to zero due to their tax-exempt status).”

The fourth quarter decline in household ownership was no doubt offset, in part, by the slight improvement in valuation. The Fed's estimate of changes in the market values of household ownership are based on the BofA Municipal Master market price index.

Primary market
RBC Capital Markets priced the Austin Independent School District of Travis County, Texas’ (PSF: Aaa/NR/AAA) $299.145 million of Series 2019 unlimited tax school building and refunding bonds.

In the short-term market, the New York Metropolitan Transportation Authority (NR/SP1+/F1+) competitively sold $750 million of Series 2019A dedicated tax fund bond anticipation notes.

The BANs were won by five groups, including BofA Securities, Goldman Sachs, Jefferies, JPMorgan Securities, and Morgan Stanley.

The financial advisors are Public Resources Advisory Group and Backstrom McCarley Berry. The bond counsel are Nixon Peabody and D. Seaton & Associates.

Belmont, Mass., (Aaa/AAA/NR) sold $102.03 million of GO municipal purpose loan of 2019 bonds. JPMorgan Securities won the issue with a true interest cost of 3.3101%. The financial advisor is Hilltop Securities; bond counsel is Locke Lord.

On Wednesday, New York State (Aa1//AA+) is competitively selling $115.69 million of Series 2019A tax-exempt new-money transportation, education and environmental purposes GOs. The financial advisor is Public Resources Advisory Group. The bond counsel are the state attorney general and Hawkins Delafield.

The Virginia Public Building Authority (Aa1/AA+/AA+) is competitively selling $3425 million of public facilities revenue bonds in three sales consisting of $180.6 million of Series 2019A tax-exempts, $135.9 million of Series 2019B bonds subject to the AMT and $25.1 million of Series 2019C taxable.

The financial advisor is Frasca & Associates; the bond counsel is Kaufman & Canoles.

Bond sales

Click here for the Austin ISD, Texas, pricing

Click here for the Belmont, Mass., sale

Bond Buyer 30-day visible supply at $6.96B
The supply calendar fell $123.6 million to $6.96 billion Tuesday, composed of $2.78 billion of competitive sales and $4.18 billion of negotiated deals.

Secondary market
Municipal bonds were mixed on Tuesday, according to the MBIS benchmark scale, with muni yields falling less than one basis point in the 10-year maturity and rising less than a basis point in the 30-year maturity. High-grade munis were also mixed, with yields falling less than one basis point in the 10-year maturity and remaining unchanged in the 30-year maturity.
Investment-grade municipals were stronger on Refinitiv Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni falling one basis point while the yield on the 30-year muni dropped two basis points.

Treasuries were stronger as equities traded mixed.

The 10-year muni-to-Treasury ratio was calculated at 78.8% while the 30-year muni-to-Treasury ratio stood at 96.1%, according to MMD.

Calif. GOs trade mixed
California (Aa3/AA-/AA-) sold $2.29 billion of various purpose GOs on March 6. Since then, the bonds have been trading in secondary market activity.

On Tuesday, the 5% GOs of 2033 were trading at a high price of 112.948 after originally being priced at 112.187. Volume totaled $930,000 in 21 trades. On Monday, the 5s traded at a high price of 112.999 on volume of $5.2 million in four trades.

The 5% GOs of 2020 were trading at a high price of 103.039 after originally being priced at 119.235. Volume totaled $2.3 million in eight trades. On Monday the 5s traded at a high price of 103.157 on volume of $2 million in five trades.

Previous session's activity
The MSRB reported 36,705 trades on Monday on $9.60 billion of volume. California, Texas and New York were most traded, with the Golden State taking 14.064% of the market, the Lone Star State taking 13.439% and the Empire State taking 11.239%. The most active issue was the Puerto Rico Sales Tax Financing Corp.’s zeros of 2051 which traded 945 times on volume of $39.07 million.

Treasury auctions $24B re-opened 10-years
The Treasury Department auctioned $24 billion of 9-year 11-month notes with a 2 5/8% coupon at a 2.615% high yield, a price of 100.084685. The bid-to-cover ratio was 2.59.

Tenders at the high yield were allotted 78.63%. All competitive tenders at lower yields were accepted in full. The median yield was 2.585%. The low yield was 2.188%.

Treasury to sell $60B 4-week bills
The Treasury Department said it will sell $60 billion of four-week discount bills Thursday. There are currently $34.999 billion of four-week bills outstanding.

Treasury also said it will sell $35 billion of eight-week bills Thursday.

Gary E. 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.

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Primary bond market Secondary bond market State of California State of New York Metropolitan Transportation Authority State of Texas Austin Independent School District, TX Virginia Public Building Authority