Independent and authoritative analysis and perspective for the bond buying industry.
In a voter-backed effort to promote affordable housing, an Oregon transportation issuer is selling the largest deal of the week — $653 million of taxable general obligation bonds. On Tuesday, the competitive slate also has Dallas, Texas, with two GO deals totaling $398 million and the Virginia Public School Authority will sell two deals totaling $243 million.
Metro (Aaa/AAA/NR), which encompasses Multnomah, Washington and Clackamas Counties, Ore. is competitively selling $652.8 million of taxable Series 2019 GOs on Wednesday.
On Nov. 6, 2018, the ballot measure for the bonds to fund affordable housing projects was approved by a majority of Metro’s voters. The vote, which required a majority approval under law for new or additional ad valorem property taxes, was 59.4% to 40.6%.
Piper Jaffray is the financial advisor while Orrick Herrington is the bond counsel.
Projects to be funded with the proceeds include the construction of affordable housing for low-income households; the purchase, rehabilitation, and preservation of affordability of existing housing; and acquisition of land for affordable housing.
IHS Markit Ipreo forecasts weekly bond volume will rise to $5.0 billion from a revised total of $3.9 billion in the prior week, according to updated data from Refinitiv. The calendar is composed of $2.8 billion of negotiated deals and $2.2 billion of competitive sales.
Main Street Natural Gas Inc. (Aa1/NR/NR) in Georgia is scheduled to come to market with $606 million of Series 2019B gas supply revenue bonds. TD Securities is expected to price the deal on Tuesday.
Dallas (NR/AA-AA) is coming to market with $398.46 million of GOs, selling in two competitive deals on Tuesday. Slated for sale are $241.045 million of Series 2019A refunding and improvement GOs and $157.415 million of Series 2019B refunding GOs. PFM Financial Advisors and KG & Associates are the financial advisors. Bracewell, West & Associates and the State Attorney General are the bond counsel.
The Virginia Public School Authority (Aa1/AA+/AA+) will sell $243 million of revenue bonds on Tuesday.
Opportunities and Capitulation
With little expectation for rising yields, sources said the market is being impacted by extension trades as well as ravenous demand for the scarce, lower-rated new-issue paper in the meantime.
The upcoming week’s new-issue calendar will follow suit with 2019’s volume trend, leaving much to be desired with $5 billion in primary market sales — the largest of which are two deals in Georgia and Oregon, each totaling a little more than $600 million.
As a result, the low-yield environment combined with the continued low volume will make for bleak upcoming spring reinvestment scenario.
The municipal market is positioning now for what amounts to a “potentially brutal” reinvestment period over the next three months, according to Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
“The technical condition of the tax-free bond market should be quite punitive to those with cash looking for bonds,” Pietronico said on Friday.
“Our sense is the market is in the capitulation phase in regard to Federal Reserve monetary policy,” he added.
The market is acting as if the next move in interest rates is down, and as such “duration extensions are underway.”
“In our view there are very few reasons to expect a notable pick-up in yields higher in the coming weeks,” he said.
His view comes as economists predict that the target range for the benchmark federal funds rate will stay put at 2.25% to 2.50% through 2020.
Meanwhile, the strong investor demand — especially for high-yield and long-maturity bonds — continues to impact the price and availability of new issuance as well as muni/Treasuryratios.
Hospital deals, such as this week’s financing for the A-rated Henry Ford Health System, was more than 10 times oversubscribed and yields bumped by 10 basis points, noted Guy Davidson, senior vice president AllianceBernstein.
Moody’s Investors Service upgraded the system to A2 with stable outlook, expecting the health system to continue producing increasingly stronger margins and cash flow in the coming year. Moody’s cited the system’s strong brand and long history of serving the community of southeast Michigan.
Davidson said the impact of the strong demand is continued outperformance of long-maturity municipals compared to Treasuries.
Meanwhile, he said the market should monitor other developments as the second quarter progresses — such as the potential impact from the declining tobacco sector and the rising price of Puerto Rico paper — particularly the Puerto Rico Electric Power Authority.
In addition, the market can take advantage of the recent reset of the Securities Industry & Financial Markets Association’s rate to 2.30% — which is currently higher than the 16-year triple-A scale tracked by Municipal Market Data. However, while Davidson said the rate is “nice to earn,” it will likely be short-lived.
Bond Buyer 30-day visible supply at $8.32B
The supply calendar was calculated at $8.32 billion on Friday and is composed of $4.24 billion of competitive sales and $4.08 billion of negotiated deals.
Lipper: More inflows into muni funds
For 16 straight weeks, investors moved cash into municipal bond funds, according to data from Refinitiv Lipper released Thursday.
Mutual funds which report flows weekly saw $1.576 billion of inflows in the week ended April 24 after inflows of $678.878 million in the previous week.
Exchange traded muni funds reported inflows of $294.445 million after inflows of $86.131 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.281 billion after inflows of $592.747 million in the previous week.
The four-week moving average remained positive at $981.153 million, after being in the green at $970.127 million in the previous week.
Long-term muni bond funds had inflows of $2.220 billion in the latest week after inflows of $674.358 million in the previous week. Intermediate-term funds had outflows of $162.223 million after inflows of $330.501 million in the prior week.
National funds had inflows of $1.249 billion after inflows of $534.695 million in the previous week. High-yield muni funds reported inflows of $279.009 million in the latest week, after inflows of $349.863 million the previous week.
On Wednesday, the Investment Company Institute reported long-term municipal bond funds and exchange-traded funds saw a combined inflow of $1.250 billion in the week ended April 17, while long-term muni funds alone saw an inflow of $1.127 million as ETF muni funds saw an inflow of $123 million.
Munis were stronger on the MBIS benchmark scale Friday, which showed yields falling two basis points in the 10-year maturity and dropping one basis point in the 30-year maturity. High-grade munis were also stronger, with yields falling one basis point in the 10-year maturity and declining less than a basis point in the 30-year maturity.
On Refinitiv Municipal Market Data’s AAA benchmark scale, the yield on the 10-year muni GO fell three basis points while the 30-year muni yield dropped four basis points.
“Munis continue the rally with the ICE Muni Yield curve down almost two basis points in the 10-year to three basis points in the long end. The two-year/10-year muni spread came in to 33 basis points from yesterday’s 35 basis points,” ICE Data Services said in a Friday comment. “New York bonds from several localities in the Hudson Valley are about four basis points higher in yield, giving back some after an extending rally driven by tax-related demand. High-yield is one basis point lower in yield as well. Tobaccos are not participating in the rally today, but are flat to one basis point higher in yield. The taxable sector is rallying along with Treasuries; two-year taxable munis are 4.5 basis points lower in yield.”
Treasuries were stronger as stocks traded little changed.
The 10-year muni-to-Treasury ratio was calculated at 74.8% while the 30-year muni-to-Treasury ratio stood at 87.1%, according to MMD.
Previous session’s activity
The MSRB reported 37,739 trades on Thursday on volume of $14.58 billion. The 30-day average trade summary showed on a par amount basis of $11.96 million that customers bought $5.74 million, customers sold $4.04 million and inter-dealer trades totaled $2.19 million.
California, Texas and New York were most traded, with the Golden State taking 16.274% of the market, the Empire State taking 12.027% and the Lone Star State taking 11.721%.
The most actively traded security was the Ohio Hospital Facilities Series 2019B revenue 4s of 2046 which traded nine times on volume of $32.5 million.
Week’s actively traded issues
Some of the most actively traded munis by type in the week ended April 26 were from Texas, Alabama and Puerto Riso issuers, according to IHS Markit.
In the GO bond sector, the Frisco ISD, Texas, 4s of 2049 traded 38 times. In the revenue bond sector, the Tuscaloosa IDA, Ala., 5.25s of 2044 traded 81 times. In the taxable bond sector, the Puerto Rico GDB Debt Recovery Authority 7.5s of 2040 traded 32 times.
Week’s actively quoted issues
Puerto Rico and Texas names were among the most actively quoted bonds in the week ended April 26, according to IHS Markit.
On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5s of 2058 were quoted by 110 unique dealers. On the ask side, the Amarillo EDC, Texas, taxable 2.657s of 2023 were quoted by 34 dealers. Among two-sided quotes, the COFINA revenue 5s of 2058 were quoted by 26 dealers.
The most actively traded issue was the NYC MWFA Series 2019 revenue 4s of 2041 which traded 19 times on volume of $35.22 million.
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.