WED­NES­DAY’S YIELDS

The Bond Buyer - - Front Page -

Wall Street firms agree that mu­nic­i­pal bond vol­ume will drop in 2018. The only ques­tion is by how much.

An­a­lysts in a sur­vey by Mu­nic­i­pal Mar­ket Data pre­dict de­clines from 2017 that range from 8% to 34%. Is­suers sold $434.76 bil­lion in 2017, af­ter set­ting yearly is­suance record of $451.65 bil­lion the year be­fore.

Bank of Amer­ica Mer­rill Lynch is one of the most bullish on muni sup­ply in 2018, pro­ject­ing a $400 bil­lion year, while UBS is also quite op­ti­mistic with $355 bil­lion. JPMor­gan Se­cu­ri­ties and Op­pen­heimer both see the muni mar­ket get­ting $330 bil­lion, while Ramirez & Co. sees $317 bil­lion, PNC Cap­i­tal Mar­kets projects $315 bil­lion and Janney is es­ti­mates $310 bil­lion. The most bear­ish pre­dic­tions come from RBC Cap­i­tal Mar­kets and Cum­ber­land Ad­vi­sors, which each fore­cast a $285 bil­lion year.

Rea­sons for lower vol­ume stem from the tax bill tak­ing ef­fect this year. Un­der the leg­is­la­tion, mu­nic­i­pal is­suers will no longer be able to come to mar­ket with ad­vance re­fund­ings — a pop­u­lar cost-sav­ing tool that al­lowed is­suers to take ad­van­tage of fall­ing in­ter­est rates.

Also ac­count­ing for low vol­ume es­ti­mates is the bil­lions of is­suance “stolen” from 2018 and moved ahead to 2017, as is­suers both big and small rushed to mar­ket ahead of the New Year.

“Our 2018 gross sup­ply fore­cast [for 2018] is $317 bil­lion, or down 23% year over year,” Ramirez wrote in its weekly mar­ket re­port re­leased late Tues­day. “The steep pro­jected de­cline in gross sup­ply of about $93 bil­lion in 2018 vs. 2017 is driv- en by re­cent tax re­form curbs on tax-ex­empt ad­vance re­fund­ings, higher short-end rates, and a con­tin­ued un­cer­tain po­lit­i­cal en­vi­ron­ment, all of which could im­pact the pace and scale of new projects/new money.”

Ramirez said its to­tal es­ti­mate for 2018 con­sists of $185 bil­lion of new money, or58% of the to­tal and $132 bil­lion of re­fund­ings.

This week’s sup­ply calendar to­tals about $757 mil­lion, in­clud­ing $713 mil­lion of ne­go­ti­ated deals and $44 mil­lion of com­pet­i­tive sales.

RBC Cap­i­tal Mar­kets is ex­pected to price the New Jersey Eco­nomic De­vel­op­ment Au­thor­ity’s $381.195 mil­lion of state lease rev­enue bonds for state govern­ment build­ings on Thurs­day.

The of­fer­ing is com­prised of $197.275 mil­lion bonds for the Health Depart­ment and Tax­a­tion Di­vi­sion of­fice project; $19.225 mil­lion tax­able bonds for the Health Depart­ment of­fice project; and $164.695 mil­lion of bonds for the Ju­ve­nile Jus­tice Com­mis­sion Fa­cil­i­ties project.

Pro­ceeds of the sale will be used to fund con­struc­tion of Health Depart­ment and Tax­a­tion Di­vi­sion of­fice build­ings in Tren­ton and to fi­nance build­ing ju­ve­nile jus­tice com­mis­sion fa­cil­i­ties in Ewing and Winslow town­ships.

The deal is rated Baa1 by Moody’s In­vestors Ser­vice, BBB-plus by S&P Global Rat­ings and A-mi­nus by Fitch Rat­ings.

RBC is also ex­pected to price the So­corro In­de­pen­dent School District, Texas’ $173.54 mil­lion of Se­ries 2018 un­lim­ited tax school build­ing bonds on Thurs­day.

The deal, which is backed by the Per­ma­nent School Fund guar­an­tee pro­gram, is rated triple-A by Moody’s and Fitch.

Top-rated mu­nic­i­pal bonds fin­ished mixed on Wed­nes­day. The yield on the 10-year [2028] bench­mark muni gen­eral obli­ga­tion was un­changed from 1.98% on Tues­day, while the 30-year [2038] GO yield fell one ba­sis point to 2.54% from 2.55% ac­cord­ing to the fi­nal read of MMD’s triple-A scale.

U.S. Trea­suries were mixed on Wed­nes­day. The yield on the two-year Trea­sury rose to 1.94% from 1.92% on Tues­day, the 10-year Trea­sury yield fell to 2.45% from 2.46% and the yield on the 30-year Trea­sury de­creased to 2.79% from 2.81%.

On Wed­nes­day, the 10-year muni-to-Trea­sury ra­tio was cal­cu­lated at 81.0% com­pared with 80.3% on Tues­day, while the 30-year muni-to-Trea­sury ra­tio stood at 91.2% ver­sus 90.7%, ac­cord­ing to MMD. ◽

By Chip Bar­nett & aaron Weitz­man

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