With only $5.5B of supply expected, muni issuers not seizing opportunity

Bonds

With demand for municipal securities at an all-time high and cash continuing to flow into the market, one would think there would be more issuance.

IHS Ipreo is estimating supply will come in at $5.53 billion, in a calendar composed of $4.41 billion of negotiated deals and $1.12 billion of competitive sales. There are 17 deals scheduled that are $100 million or larger, with only one competitive deal bigger than $100 million. Seven of those deals are either taxable, partially taxable or corporate CUSIPs, including four out of the top five largest deals.

“I know it can be hard to push up and accelerate deals, but I would think issuers would be itching not only to take advantage of the appetite for bonds right now but also the low rates,” said one New York trader. “Now is the time; why wait?”

It may be easy for issuers right now, but it is not so easy for money managers.

“There is just a lot of cash coming into the market, and on top of that, there is still cash left from last year,” said Dawn Mangerson, director of municipal portfolio management at Loomis Sayles. “We are trying to get in as many deals as possible, but it’s hard and it’s even harder when you consider all these taxable deals are essentially stealing away tax-exempt paper.”

She added that it is difficult for everyone, from top to bottom on the buy side, as all deals are oversubscribed, making the process of reinvesting portfolios even longer.

“We are always looking in the secondary, but it’s not always easy to do in block size and the secondary is usually richer than the primary,” she said. “You may have to pay up a basis point or two to get your fill, but it’s better to be reinvested as opposed to sitting on your cash.”

Mangerson also noted that the low level of yields is a driver to refinancing debt, especially for the savvy, sophisticated issuer.

Other than the economic reasons for the taxable muni issuance boom, she said that the taxable market has a different view on credit, so when a taxable munis comes, they are of much higher quality.

Jim Grabovac, investment strategist at Loomis Sayles, added that while he has been seeing some reduction in commercial bank holdings he has seen an increase on insurance side.

“Some of additional muni exposure on insurance side is finding its way into the taxable,” he said. “Munis relative to other asset classes, the muni/Treasury ratios have tighten considerably and valuations against Treasurys are richer than they have been in a decade.”

Primary market
Bank of America Securities is expected to price the Escambia County Health Facilities Authority, Florida’s (Baa2/BBB+/BBB/ ) $589.42 million of health care facilities revenue and taxable revenue bonds for Baptist Health Care Corp. Obligated Group on Tuesday. The tax-exempt portion is expected at $523.91 million, while the taxable portion is seen at $65.51 million.

Goldman Sachs is scheduled to price NYU Langone Hospital’s (A3/A / / ) $571.2 million of taxable corporate CUSIP bonds on Tuesday after indications of interest on Monday. Goldman is also slated to price the Dormitory Authority of the State of New York’s (A3/A / / ) $473.92 million of revenue bonds for NYU Langone on Tuesday.

Citi is expected to price Ohio’s $456.77 million of turnpike revenue refunding taxable bonds on Wednesday. It is anticipated the deal will have two tranches: the first for $81.19 million of senior lien is expected to mature serially from 2032 through 2036 as well as have a term bond in 2048 and will carry ratings of Aa2 from Moody’s Investors Service, AA- from S&P Global Ratings and AA from Fitch Ratings. The second tranche for $375.58 million of junior liens is expected to mature serially from 2021 through 2031 as well have term bonds in 2040 and 2048 and carries ratings of Aa3 from Moody’s, A+ from S&P and A+ from Fitch.

Morgan Stanley is scheduled to price University of Southern California’s (AA1/AA / / ) $320 million of taxable bonds on Thursday. The deal is a century bond and will mature in 2120.

Lipper sees inflows for 55th consecutive week
For the 55th week in a row, investors poured cash into the municipal market continuing the streak as the money flowing into cash-exempt mutual funds seems to be never ending.

In the week ended Jan. 22, weekly reporting tax-exempt mutual funds added $1.999 billion of inflows, after inflows of $2.340 billion in the previous week, according to data released by Refinitiv Lipper late on Thursday.

Exchange-traded muni funds reported inflows of $62.224 million, after inflows of $500.704 million in the previous week. Ex-ETFs, muni funds saw inflows of $1.937 billion after inflows of $1.839 billion in the prior week.

The four-week moving average remained positive at $1.877 billion, after being in the green at $1.801 billion in the previous week.

Long-term muni bond funds had inflows of $1.418 billion in the latest week after inflows of $1.824 billion in the previous week. Intermediate-term funds had inflows of $203.819 million after inflows of $376.446 million in the prior week.

National funds had inflows of $1.730 billion after inflows of $2.119 billion while high-yield muni funds reported inflows of $490.463 million in the latest week, after inflows of $685.574 million the previous week.

Secondary market
Munis were stronger on the MBIS benchmark scale, with yields falling by three basis points in the 10-year and by two basis points in the 30-year maturity. High-grades were also stronger with yields on MBIS AAA scale decreasing two basis points in the 10-year maturity and by one basis point in the 30-year maturity.

On the MMD benchmark scale, the yield on both the 10- and 30-year were two basis points lower to 1.23% and 1.88%, respectively.

The 10-year muni-to-Treasury ratio was calculated at 71.8% while the 30-year muni-to-Treasury ratio stood at 87.1%, according to MMD.

Stocks were in the red while Treasury yields mostly dropped.

Stocks sank as the Coronavirus continued to spread. The Dow Jones Industrial Average was down about 0.59%, the S&P 500 Index fell around 1.12% and the Nasdaq lost about 0.92%.

The Treasury three-month was yielding 1.556%, the two-year was yielding 1.476%, the five-year was yielding 1.497%, the 10-year was yielding 1.679% and the 30-year was yielding 2.128%.

Week’s actively traded issues
Some of the most actively traded munis by type in the week ended Jan. 24 from Illinois, New Hampshire and Texas issuers, according to IHS Markit.

In the GO bond sector, the Chicago 5s of 2027 traded 41 times. In the revenue bond sector, the National Finance Authority, New Hampshire 4.125s of 2034 traded 42 times. In the taxable bond sector, the Red River Education Finance Corp. 3.397s of 2045 traded 82 times.

Week’s actively quoted issues
Puerto Rico, New York and California bonds were among the most actively quoted in the week ended Jan. 24, according to IHS Markit.

On the bid side, the Puerto Rico Sales Tax Financing Corp. revenue 5s of 2058 were quoted by 21 unique dealers. On the ask side, the New York State Thruway Authority 3s of 2053 were quoted by 180 dealers. Among two-sided quotes, the California taxable 7.35s of 2039 were quoted by 19 dealers.

Previous session’s activity
The MSRB reported 36,059 trades Thursday on volume of $16.64 billion. The 30-day average trade summary showed on a par amount basis of $11.02 million that customers bought $5.59 million, customers sold $3.56 million and interdealer trades totaled $1.85 million.

Texas, California and New York were most traded, with the Lone Star State taking 14.565% of the market, the Golden State taking 13.90% and the Empire State taking 12.112%.

The most actively traded security was the Miami-Dade County revenue 4s of 2049, which traded 18 times on volume of $45.165 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.

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