Municipal market participants expect demand to outpace volume again in the week ahead, after yields lifted off record lows in the past week and Pennsylvania pulled its planned $1.2 billion offering.
Primary Market
Total volume for the week of July 22 is estimated by Ipreo at $6.7 billion, after a revised total of $7.9 billion was sold in the prior week, according to Thomson Reuters data. The calendar includes $5.1 billion of negotiated deals and $1.6 billion of competitive sales.
"Trend wise, we haven't seen changes, especially with demand," said Dan Heckman, senior fixed-income strategist at U.S. Bank Wealth Management. "We might see a change in the fund flows in the near future, but we have continued to see strong demand."
Heckman said he expects issuance to pick up to meet investors' appetite for munis.
"There is demand for the right issue and pricing, and when that occurs, it is still a food fight to get the bonds," he said. "It's a challenging environment for investors but a dream environment for issuers."
The Commonwealth of Pennsylvania, which was set to top the calendar with a $1.2 billion issue of general obligation bonds, now says the sale will take place on Aug. 9. The governor's finance office told The Bond Buyer that it wanted to update and refresh offering documents to reflect the new budget signed this week.
Instead, the Michigan State Building Authority will bring the biggest deal, a $664 million offering of revenue and refunding bonds. Morgan Stanley is expected to price the transaction on Wednesday.
The deal will be mostly bonds to refund commercial paper and authority debt from 2006 and 2008, for estimated net present value savings of at least 20%, according to authority officials, who said the estimates could change based on interest rates. The deal is rated Aa2 by Moody's Investors Service and AA-minus by S&P Global Ratings and Fitch Ratings.
The New York City Metropolitan Transportation Authority's $520 million of revenue bonds are scheduled to be priced by Wells Fargo on Wednesday, following a one day retail order period. The deal is expected to mature serially from 2017-2036 and include term bonds in 2041, 2046 and 2056 and is rated A1 by Moody's, AA-minus by S&P and A by Fitch.
The largest competitive bond sale will come from the Massachusetts Bay Transportation Authority in what will be the authority's first competitive sale in 15 years. They will be selling two separate deals totaling roughly $344 million on Tuesday.
The MBTA will be offering about $118.5 of Series 2016A assessment bonds and around $225.7 million of Series 2016A senior sales tax capital appreciation bonds.
"We have seen a flight to quality recently," said Paul Brandley, director of treasury services, MBTA. "That is going to support our issuance and we are thrilled with the rally in rates recently and all signs are positive heading into the sale."
Passage of Pennsylvania's new spending plan, two weeks behind schedule, avoids a repeat of last year's fiasco, in which the spending plan was nine months late. It also helps deflect warnings of more rating downgrades and possible legal challenges over budget imbalance.
S&P placed the state on credit watch with negative implications after the legislature sent Wolf a budget with a $1.3 billion shortfall, while Moody's has a negative outlook and Fitch is stable. Rating agencies have downgraded the Keystone State five times in the past three years.
Critics say the budget isn't really balanced because more than half the new revenue relies on one-shot measures and optimistic assumptions. They say postponing the sale will give investors more time to digest the new budget and, more importantly, give the ratings agencies time to update any ratings or outlooks.
Fitch earlier today issued a statement of their thoughts of the new budget and that it reflects a slow progress towards structural balance.
"Pennsylvania's fiscal 2017 budget makes progress on, but does not fully resolve the commonwealth's sizable structural budget gap," according to the release. "The budget increases funding for policy areas including K-12 education while meeting Pennsylvania's statutory commitment toward full actuarial pension funding. However, it relies on a mix of recurring and non-recurring measures to achieve balance."
Fitch said revenue measures to support the fiscal 2017 budget include a range of tax increases and one-time measures to generate approximately $1.3 billion in new money. The tax increases are recurring measures that are generally narrow in scope with some uncertainty in projected collections, according to Fitch.
The largest component is a $1 increase in the cigarette tax projected to generate $430 million annually. Other narrow measures include extending the commonwealth's sales tax to digital downloads such as music and apps, levying new taxes on e-cigarettes, smokeless and roll-your-own tobacco, and a new tax on casinos' gross table games revenues.
Secondary Market
Top-rated municipal bonds finished weaker on Friday, traders said, with yields on some maturities rising by as much as five basis points.
The yield on the 10-year benchmark muni general obligation rose four basis points to 1.45% from 1.41% on Thursday, while the yield on the 30-year muni increased five basis points to 2.10% from 2.05%, according to a final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Friday. The yield on the two-year Treasury rose to 0.70% from 0.67% on Thursday as the 10-year Treasury yield gained to 1.60% from 1.53% and the yield on the 30-year Treasury bond increased to 2.30% from 2.25%.
The 10-year muni to Treasury ratio was calculated at 91.1% on Friday compared to 92.1% on Thursday, while the 30-year muni to Treasury ratio stood at 91.3% versus 91.1%, according to MMD.
Week's Most Actively Traded Issues
Some of the most actively traded issues by type in the week ended July 15 were from Oregon and New York issuers, according
In the GO bond sector, the Oregon 2s of 2030 were traded 23 times. In the revenue bond sector, the NYC TFA 5s of 2040 were traded 67 times. And in the taxable bond sector, the Port Morrow, Ore., 2.987s of 2036 were traded 58 times.
Week's Most Actively Quoted Issues
Washington and New York issues were among the most actively quoted names in the week ended July 15, according to Markit.
On the bid side, the Port of Seattle, Wash., revenue 5s of 2023 were quoted by 19 unique dealers. On the ask side, the N.Y. MTA revenue 5s of 2037 were quoted by 18 unique dealers. And among two-sided quotes, the N.Y. TDC revenue 5s of 2041 were quoted by 16 dealers.
Bond Buyer Visible Supply
The Bond Buyer's 30-day visible supply calendar increased $3.37 billion to $12.61 billion on Monday. The total is comprised of $4.40 billion of competitive sales and $8.21 billion of negotiated deals.
Lipper: Muni Bond Funds See Inflows
For the 41st straight week, municipal bond funds reported inflows, according to Lipper data released on Thursday.
The weekly reporters saw $1.222 billion of inflows in the week ended July 13, after inflows of $737.996 million in the previous week, Lipper said.
The four-week moving average remained positive at $1.030 billion after being in the green at $950.126 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 experienced inflows, gaining $762.527 million in the latest week after inflows of $374.956 million in the previous week. Intermediate-term funds had inflows of $186.246 million after inflows of $147.424 million in the prior week.
National funds had inflows of $995.331 million on top of inflows of $688.442 million in the previous week. High-yield muni funds reported inflows of $335.893 million in the latest reporting week, after inflows of $200.676 million the previous week.
Exchange traded funds saw inflows of $124.531 million, after inflows of $197.821 million in the previous week.
