The market is prepping for $7.5 billion of new paper that is set to hit the market, as more than $50 billion in August redemptions free up cash to buy bonds.
Municipals began Monday morning with a solid tone as they followed Treasuries and dealers awaited the largest deal of the week, according to a New York trader.
“We are strong right now and so far it’s unchanged on the day,” he said. “It’s a summer Monday and we are in very good shape; there’s no weakness.”
He added, the market will sit up and take notice when one of the week’s largest deals, $800 million of New York City general obligation bonds, hits screens later in the week.
“I think there’s a lot of money out there, and that deal should do very well. There is a lot of cash among buyers and this is such a recognizable name and great credit,” he said, noting that the deal should be the bellwether deal of the week.
“Supply is up a little from last week and reinvestments are still going on.”
Municipal bonds were stronger on Monday around midday, according to a read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 30-year maturities.
High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling as much as one basis point in 18 of the 30 maturities.
Municipals were steady on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation and the yield on the 30-year muni maturity both remaining unchanged.
On Friday, the 10-year muni-to-Treasury ratio was calculated at 84.0% while the 30-year muni-to-Treasury ratio stood at 98.6%, 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 33,430 trades on Friday on volume of $11.360 billion.
California, Texas and New York were the states with the most trades, with the Golden State taking 16.813% of the market, the Lone Star State taking 12.011% and the Empire State taking 10.906%.
JPMorgan Securities is expected to price the Wisconsin Health and Educational Facilities Authority’s $1.23 billion issue for the Advocate Aurora Health Credit Group on Tuesday. The deal is rated Aa3 by Moody’s Investors Service and AA by S&P Global Ratings and Fitch Ratings.
New York City is issuing about $869.555 million of general obligation bonds. The deals include $809.555 million of Fiscal 2019 Series A and B, Fiscal 1994 Series M and Subseries H3 GOs slated to be priced by RBC Capital Markets on Wednesday after a two-day retail order period. The city is also competitively selling $60 million of taxable Fiscal 2018 Series C GOs on Wednesday.
The deals are rated Aa2 by Moody’s and AA by S&P and Fitch.
Morgan Stanley is expected to price the Hawaii Airport System’s $413.62 million of revenue bonds, on Thursday, consisting of Series 2018A subject to the alternative minimum tax and Series 2018B non-AMT bonds. The deal is rated A1 by Moody’s, AA-minus by S&P and A-plus by Fitch.
In the competitive arena on Tuesday, Minnesota is offering $619.37 million of GOs in three sales: $397.37 million if Series 2018 various purpose bonds; $206 million of Series 2018B trunk highway bonds; and $16 million of Series 2018C taxable various purpose bonds.
Public Resources Advisory Group is the financial advisor and Kutak Rock is the bond counsel. The deals are rated AAA by S&P and Fitch.
Michigan is selling $149.2 million of environmental program GOs on Tuesday.
Robert W. Baird is the financial advisor and Dickinson Wright is the bond counsel. The deal is rated Aa1 by Moody’s and AA by S&P and Fitch.
Prior week's actively traded issues
Revenue bonds comprised 55.36% of new issuance in the week ended Aug. 3, up from 55.14% in the previous week, according to Markit. General obligation bonds made up 38.69% of total issuance, down from 38.80%, while taxable bonds accounted for 5.95%, down from 6.06% a week earlier.
Some of the most actively traded munis by type were from Puerto Rico, California and New York issuers.
In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 22 times. In the revenue bond sector, the Los Angeles 4s of 2019 traded 73 times. And in the taxable bond sector, the DANY 4.946s of 2048 traded 69 times.
Tender rates for the Treasury Department's latest 91-day and 182-day discount bills were higher, as the three-months incurred a 2.010% high rate, up from 2.000% the prior week, and the six-months incurred a 2.180% high rate, up from 2.160% the week before.
Coupon equivalents were 2.048% and 2.235%, respectively. The price for the 91s was 99.491917 and that for the 182s was 98.897889.
The median bid on the 91s was 1.980%. The low bid was 1.955%.
Tenders at the high rate were allotted 56.17%. The bid-to-cover ratio was 2.54.
The median bid for the 182s was 2.150%. The low bid was 2.120%.
Tenders at the high rate were allotted 23.74%. The bid-to-cover ratio was 2.66.
Treasury also said it will sell $70 billion of four-week discount bills Tuesday. There are currently $92.995 billion of four-week bills outstanding.
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.