Municipal bond buyers are eagerly awaiting this week’s hefty new-issue calendar, which features large transportation and hospital deals.
“The recent uptick in airport issuance and healthcare credits continues this week,” said John Hallacy, founder of John Hallacy Consulting LLC. “Denver Airport and Kansas Airport offer a range of credits including taxable series, a subordinate series, private activity bonds, non-AMT tax-exempts and tax-exempts. The couponing should demonstrate how broad the range is within the current market.”
Hallacy said taxables also play a big role on this week’s slate.
“On the healthcare side, Baptist and Tampa General are issuing taxable paper. Ochsner Clinic has an interesting put bond feature,” he said. “There is quite a range this week, but another noteworthy deal is a charter school out of Philadelphia. We are well on our way to setting records for taxable issuance this year. Only the election may take rates away from the current trend.”
ICE Data Services said noted that September’s monthly volume rose 26.3% to $47.28 billion — the highest issuance for September on record, dating back to 1986.
“This marks the fourth month in a row in which monthly volume has exceeded $40 billion, an event that did not even occur during the record-breaking volume year of 2017 when there was a total of $448.6 billion,” ICE said.
Taxable deals once again boosted volume last month.
“Taxable munis issuance fueled the fire, as they have all year. These are now up 115.9% year-over-year to $16.02 billion,” ICE said.
On Tuesday, municipals were little changed, with yields on the AAA scales remaining mostly steady.
“After a period of adjustments upward in yield, the market seems to have found a bigger comfort level with rates,” says Kim Olsan, senior vice president at FHN Financial. “That isn’t to say there won’t be a further reset, but last week’s issuance brought improved distribution in shorter maturities where yields have moved up three to 10 basis points.”
She said that one trend in secondary trading which is gaining momentum “is the richness that optionality is drawing in bidding. Several prints are showing a tightening in yield-to-call spreads, i.e. final maturities of 2028-2033 with 2024-2027 call dates. That could signal defensive demand growing in what promises to be a volatile period through year-end.”
Primary market
This week’s volume is estimated at $14.3 billion, composed of $11 billion of negotiated deals and $3.3 billion of competitive sales.
The municipal market seems poised and ready to accept the record $14 billion supply, according to municipal managers on Tuesday.
“Upcoming supply should be met with reasonable demand as the recent back-up in rates has created a more favorable entry point for investors with cash,” said Michael Pietronico, chief executive officer at Miller Tabak Asset Management.
Besides the prospect for strong demand on this week’s new issues, there is also positive news on the secondary market front, according to John Mousseau, president of Cumberland Advisors said on Tuesday.
“It seems like bid wanteds are getting good bids, and the bond market has got a pretty good bid after having yields drift up last week,” he said.
On Tuesday, Jacksonville, Fla., (/AA-/AA-/) competitively sold $154.555 million of taxable transportation refunding revenue bonds. Goldman Sachs won the deal with a true interest cost of 1.6216%.
PFM Financial Advisors is the financial advisor; Greenberg Traurig is the bond counsel.
The New York City Transitional Finance Authority (Aa1/AAA/AAA//) competitively sold $134.52 million of NYC recovery bonds Fiscal 2003 Series 21-A as a remarketing on Tuesday.
BNY Mellon Capital Markets won the deal with a TIC of 0.3049%. The bonds were priced to yield from 0.21% with a 5% coupon in 2021 to 0.23% with a 4% coupon in 2022.
The TFA is also competitively selling $200 million of Fiscal 2021 Series S-1 building aid revenue bonds (Aa3/AA/AA) on Wednesday.
Frasca & Associates and Public Resources Advisory Group are the financial advisors. Norton Rose and Bryant Rabbino are the bond counsel.
In the healthcare sector, BofA Securities priced the Huntsville Health Care Authority, Ala.’s (A1/NR/NR/NR) $232.83 million of Series 2020B-1 bonds.
The bonds were priced to yield from 2.20% with a 5% coupon in 2035 to 2.71% with a 4% coupon in 2040. A 2045 maturity was priced as 4s to yield 2.93% while a 2050 maturity was priced as 3s to yield 3.08%.
Assured Guaranty Municipal insured the $91.74 million 2050 maturity, which is rated AA by S&P Global Ratings.
BofA is expected to price the Baptist Healthcare System Obligated Group’s (A2/A//) $508 million of Series 2020B taxable bonds on Wednesday. Citigroup on Wednesday is set to price the Louisiana Public Facilities Authority’s (A3/A/NR/NR) $377 million of revenue bonds for the Ochsner Clinic Foundation project, consisting of Series 2020A bonds and Series 2020B hard put bonds.
Ziegler is expected to price the Colorado Health Facilities Authority’s (NR/NR/A-/NR) $242 million of Series 2020A&B revenue and revenue refunding bonds for Covenant Living Communities and Services Inc. on Thursday.
JPMorgan Securities is set to price Franklin County, Ohio’s (Aa2/NR/AA/BR) $150 million of hospital facilities revenue improvement bonds for the Nationwide Children's Hospital project.
In the transportation sector Wednesday, Morgan Stanley is set to price the Kansas City Industrial Development Authority, Mo.’s (A2/A-/A/NR) $536 million of special obligation airport bonds for the Kansas City International Airport modernization project.
On Thursday, Barclays Capital is set to price the City and County of Denver, Colo.’s $705.5 million of taxable and $219.4 million of tax-exempt airport system revenue bonds being issued on behalf of Denver’s Department of Aviation.
Wells Fargo Securities is set to price the North Carolina Turnpike Authority’s (/BBB/BBB/) $499.46 million of senior lien turnpike revenue bonds anticipation notes for the Triangle Expressway System while JPMorgan Securities will price the Oklahoma Turnpike Authority’s (Aa3/AA-/AA-/NR) $370.385 million of Series 2020A tax-exempt and Series 2020B taxable second senior revenue refunding bonds.
In the higher-yielding sector, PNC Capital Markets is expected to price the Philadelphia Industrial Development Authority’s (Baa3///) $195 million of refunding bonds for the Russell Byers charter school on Thursday.
N.Y. area airports remain under pressure
Travel restrictions and safety concerns have severely curtailed air travel in the New York City region during the the COVID-19 pandemic, according to a report released by the City Comptroller’s Office on Tuesday.
The regional airports included JFK International, Newark Liberty International, Stewart International, LaGuardia and Teterboro.
“While domestic travel has improved slightly since the spring, the city’s regional airports served fewer than 1.4 million domestic passengers and 371,461 international passengers in July, far below the 8.0 million domestic and 5.0 million international travelers last July,” the report said.
Secondary market
Some notable trade on Tuesday:
California green water 5s of 2023 traded at 0.16%. New York EFC waters 5s of 2024 traded at 0.24%. They sold the week of the hight of the sell-off in March at 1.09%.
Ohio waters, 4s of 2024 traded at 0.27%. Utah GOs, 5s of 2025, at 0.28%. Fairfax County, Virginia 4s of 2025 at 0.30%-0.29%.
Georgia GOs, 5s of 2027 at 0.58%. Hennepin County, Minnesota 5s of 2032, at 1.20%-1.15%. Arlington County, Virginia 4s of 2033 at 1.35%-1.30%.
New York City TFAs, 4s of 2040, traded at 2.35%. Conroe Texas ISD 2.25s of 2046 traded at 2.34% versus 2.41% originally.
Last week, the most traded muni sector was industrial development followed by education and utilities, IHS Markit said.
“Munis underperformed across the board again, with MMD yields rising by seven to 10 basis points week over week for six-years+ maturities, even as flows see-sawed back with $1.7 billion in net inflows,” Wells Fargo said in a Tuesday market note. “Taxable muni underperformed the most, with the taxable and BABs indices trailing the MBI benchmark by 42 and 64 basis points, respectively, week over week.”
On Tuesday, high-grade municipals were unchanged, according to final readings on Refinitiv MMD’s AAA benchmark scale.
Yields in 2021 and 2022 were unchanged at 0.14% and 0.15%, respectively. The yield on the 10-year muni was steady at 0.95% while the 30-year yield was flat at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 129.3% while the 30-year muni-to-Treasury ratio stood at 113.7%, according to MMD
The ICE AAA municipal yield curve showed short maturities rising by one basis point, to t0.14% in 2021 and to 0.15% in 2022. The 10-year maturity was unchanged at 0.91% and the 30-year remained at 1.73%.
The 10-year muni-to-Treasury ratio was calculated at 127% while the 30-year muni-to-Treasury ratio stood at 113%, according to ICE.
The IHS Markit municipal analytics AAA curve showed yields steady at 0.15% in 2021 and 0.16% in 2022 as the 10-year muni rose one basis point to 0.98% wand the 30-year increased one basis point to 1.74%.
The BVAL AAA curve showed the yield on the 2021 maturity unchanged at 0.11%, the 2022 maturity unchanged at 0.13%, the 10-year flat at 0.91% and the 30-year steady at 1.71%.
Treasuries were stronger as stock prices traded lower.
The three-month Treasury note was yielding 0.11%, the 10-year Treasury was yielding 0.73% and the 30-year Treasury was yielding 1.52%.
The Dow fell 0.70%, the S&P 500 decreased 0.75% and the Nasdaq declined 0.15%.
