Municipal bonds remained strong on Monday as a Wisconsin school district sold bonds in the primary market.
The demand component of the muni market continues to drive firm prices, a New York trader said on Monday, adding that rich relative value fundamentals in the front half of the curve have not been deterring cash from being put to work.
“We have seen a recent trend that is finally willing to extend out on the curve, which has been driving some of the recent selling in the front end while redeploying out 15- to 20-years,” he said.
With the SIFMA municipal swap index yield “continuing to rise and expected tax time ahead, we believe we will see more customers interested in extending, while tapping the Street for liquidity up front.”
Although the trader said institutional flows have been solid, retail activity has been “choppy” as buyers continue to suffer from sticker shock, even after the Fed indicated it was putting rate increases on hold.
Patrick Luby, senior municipal strategist at CreditSights said he expects demand to be bolstered by reinvestment needs of proceeds from matured and called bonds.
“In addition, even though California and New York have performed well recently, the heavier redemption flows in those two states plus the anticipated increase in retail demand as a result of the cap on the SALT deduction, we think demand could be strong enough to drive continued outperformance,” Luby wrote in a weekly report released Monday.
“This week’s expected negative supply could make it more difficult for investors still working on reinvesting last month’s called and matured bond proceeds,” he said.
Luby added that in the most recent data, primary dealer inventories increased slightly, although the total amount of short-maturity bonds declined.
“New issue supply this week is expected to total $4.9 billion, which would be much heavier than last week, but 15% behind the year to date pace and 21% lower than last year’s weekly average,” he said.
Volume is estimated at $4.9 billion this week in a slate comprised of $3.5 billion of negotiated deals and $1.4 billion of competitive sales.
On Monday, the Middleton-Cross Plains Area School District, Wis., competitively sold $138.9 million of Series 2019A unlimited tax general obligation school building and improvement bonds. Citigroup won the issue with a true interest cost of 3.3298%.
Proceeds will be used to finance various school improvements. The financial advisor is Ehlers. The bond counsel is Quarles & Brady.
The deal is rated Aa1 by Moody’s Investors Service.
On Tuesday, Clark County, Nev., will competitively sell $100 million of Series 2019 limited tax GO Flood control bonds additionally secured with pledged revenue.
The financial advisors are Hobbs, Ong & Associates and PFM Financial Advisors. The bond counsel is Sherman & Howard. The deal is rated Aa1 by Moody’s and AA-plus by S&P Global Ratings.
The week’s biggest deal is for Intel Corp. On Wednesday, Bank of America Merrill Lynch is expected to price the Chandler Industrial Development Authority, Ariz.’s $500 million of Series 2019 industrial development revenue bonds and the Oregon Business Development Commission’s $100 million of Series 250 economic development revenue bonds.
Also Wednesday, Ramirez & Co. is expected to price the Los Angeles Department of Airports’ $438 million of revenue bonds. The issue consists of Series 2019A subordinate revenue bonds subject to the alternative minimum tax, Series 2019B subordinate revenue bonds not subject to the AMT and Series 2019C subordinate refunding revenue bonds not subject to the AMT. The deal is rated Aa3 by Moody’s and AA-minus by S&P and Fitch Ratings.
In the competitive arena on Wednesday, the New York City Municipal Water Finance Authority is selling $390.415 million of Fiscal 2019 Series EE water and sewer system second general resolution revenue bonds in two offerings. The deals consist of $275 million of Subseries EE-2 bonds and $115.415 million of Subseries EE-1 bonds.
The financial advisors are Lamont Financial Services and Drexel Hamilton. The bond counsel are Nixon Peabody and the Hardwick Law Firm. The deals are rated Aa1 by Moody’s and AA-plus by S&P and Fitch.
NYC to sell $986M GOs
The City of New York said it will sell about $986 million of GOs on Wednesday, March 6. The deals will be made up of around $914 million of tax-exempt fixed-rate bonds and $72 million of taxable fixed-rate bonds.
Proceeds will be used to refund outstanding bonds.
The deal will be priced through the city’s underwriting syndicate, led by book-running lead manager Siebert Cisneros Shank & Co. with Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan, Jefferies, Loop Capital Markets, Ramirez & Co. and RBC Capital Markets serving as co-senior managers. There will be a two-day retail order period starting on Monday, March 4.
Also on March 6, the city will competitively sell $72 million of taxable fixed-rate bonds.
Bond Buyer 30-day visible supply at $6.26B
The Bond Buyer’s 30-day visible supply calendar decreased $1.20 billion to $6.26 billion for Monday. The total is comprised of $2.38 billion of competitive sales and $3.88 billion of negotiated deals.
The market was firm and demand is growing for longer paper, the New York trader said. “Muni cash is outperforming Treasuries due to an expected light calendar and strong inflows.”
Municipal bonds were mostly stronger Monday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to eight-year and 12- to 30-year maturities and rose less than a basis point in the nine- to 11-year maturities.
High-grade munis were mostly stronger, according to MBIS, with muni yields falling as much as one basis point in the one- to eight-year and 13- to 30-year maturities, rising less than a basis point in the 10- and 11-year maturities and remaining unchanged in the 12-year maturity.
Investment-grade municipals were steady on Refinitiv Municipal Market Data’s AAA benchmark scale, which showed the yield on both the 10-year muni general obligation and the 30-year muni maturity remaining unchanged.
“The broader muni market is unchanged,” ICR Data Services said in a market comment Monda6y. “High-yield, tobaccos and Puerto Rico are all steady as well. The taxable side of the market is up two basis points to 2.5 basis points in yield.”
Treasury bonds were stronger as stock prices traded higher.
On Monday, the 10-year muni-to-Treasury ratio was calculated at 78.6% while the 30-year muni-to-Treasury ratio stood at 98.5%, 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.
COFINA bonds trading
Some of the restructured Puerto Rico Sales Tax Financing Corp. bonds were again actively trading on Monday.
The COFINA restructured Series A1 5% bonds of July 1, 2058, dated Aug. 8, 2018, (principal amount of issuance of $3.479 billion), were trading on Monday at a high price of 98.00 cents on the dollar and a low price of 94.031 cents compared to high and low prices of 96.825 cents and 94.761 cents on Friday, 100 cents and 94.4 cents on Thursday, 98.50 cents and 94.05 cents on Wednesday, 98.284 cents and 94.959 cents on Tuesday and 98.637 cents and 95.055 cents last Friday, according to the Municipal Securities Rulemaking Board’s EMMA website.
Trading volume totaled $37.81 million in 782 trades compared to $68.352 million in 142 trades on Friday, $99.216 million in 143 trades on Thursday, $57.349 million in 139 trades on Wednesday, $143.321 million in 103 trades on Tuesday and $166.912 million in 49 trades last Friday, EMMA reported.
The COFINA restructured Series Capital Appreciation 0% bonds of July 1, 2046, dated Aug. 8, 2018, (principal amount of issuance of $1.095 billion), were trading on Monday at a high price of 20.118 cents on the dollar and a low price of 18.055 cents, compared to high and low prices of 20.014 cents and 18.593 cents on Friday, 22.747 cents and 18 cents on Thursday, 20.759 cents and 17.666 cents on Wednesday, 20.836 cents and 18.712 cents on Tuesday and 22.657 cents and 19.835 cents on Friday, according to EMMA.
Trading volume totaled $20.281 million in 90 trades compared to $47.048 million in 153 trades on Friday, $62.957 million in 166 trades on Thursday, $60.229 million in 139 trades on Wednesday, $69.424 million in 74 trades on Tuesday and $51.76 million in 19 trades last Friday, EMMA reported.
The COFINA restructured Series A1 4.75% bonds of July 1, 2053, dated Aug. 8, 2018, (principal amount of issuance of $1.376 billion), were trading on Monday at a high price of 93.951 cents on the dollar and a low price of 91.00 cents, compared to high and low prices of 93.276 cents and 91.00 cents on Friday, 100 cents and 89.589 cents on Thursday, 94.20 cents and 89.50 cents on Wednesday, 94.35 cents and 89.20 cents on Tuesday and 94.656 cents and 91.336 cents on Friday, according to EMMA.
Trading volume totaled $31.167 million in 51 trades compared to $30.389 million in 115 trades on Friday, $30.366 million in 104 trades on Thursday, $23.579 million in 95 trades on Wednesday, $32.832 million in 71 trades on Tuesday and $187.078 million in 29 trades last Friday, EMMA reported.
Week’s actively traded issues
Revenue bonds comprised 55.40% of total new issuance in the week ended Feb. 22, up from 55.39% in the prior week, according to IHS Markit. General obligation bonds made up 38.85%, up from 38.65%, while taxable bonds accounted for 5.75%, down from 5.96%.
Some of the most actively traded munis by type in the week were from Puerto Rico issuers.
In the GO bond sector, the Puerto Rico Commonwealth 8s of 2035 traded 58 times. In the revenue bond sector, the Puerto Sales Tax Financing Corp. 5s of 2058 traded 148 times. In the taxable bond sector, the COFINA 4.55s of 2040 traded 33 times.
Previous session’s activity
The Municipal Securities Rulemaking Board reported 37,027 trades on Friday on volume of $9.96 billion.
California, New York and Texas were the municipalities with the most trades, with the Golden State taking 15.376% of the market, the Empire State taking 12.273% and the Lone Star State taking 9.0%.
Treasury sells notes
The Treasury Department Monday auctioned $40 billion of two-year notes with a 2 1/2% coupon at a 2.503% yield, a price of 99.994183. The bid-to-cover ratio was 2.50. Tenders at the high yield were allotted 98.97%. The median yield was 2.485%. The low yield was 2.400%.
Treasury also auctioned and $39 billion 182-day discount bills at a 2.455% high rate. The coupon equivalent was 2.527%. The price was 98.758861. The median bid was 2.440% and the low bid was 2.400%. Tenders at the high rate were allotted 94.16%. The bid-to-cover ratio was 3.17.
Additionally, Treasury auctioned $41 billion of five-year notes, with a 2 3/8% coupon, a 2.489% high yield, a price of 99.467149. The bid-to-cover ratio was 2.40. Tenders at the high yield were allotted 38.28%. All competitive tenders at lower yields were accepted in full. The median yield was 2.462%. The low yield was 2.370%.
And Treasury auctioned $48 billion of 91-day discount bills at a 2.405% high rate. The coupon equivalent was 2.460% and the price was 99.392069. The median bid was 2.380%. The low bid was 2.360%. Tenders at the high rate were allotted 99.16%. The bid-to-cover ratio was 2.97.
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.