Munis Strengthen as New Issues Flow In on Election Day
Municipals turned stronger on Monday as some new issue supply hit the primary market. Activity is being tempered by this week’s election focus, according to municipal sources.
“The primary market is poised to hit the pause button this week with gross muni new issue supply at $4.4 billion due to tail risk of a bear steepening event should this week’s midterm elections result in a Republican House vs Democrat House as is expected,” Peter Block, managing director of credit research at Ramirez & Co. wrote in a report on Tuesday.
Others agreed the market is reacting to seasonal circumstances and will see some impact from the elections.
“Tax-exempt returns are lackluster on a year-to-date basis,” Stephen Winterstein, managing director at Wilmington Trust wrote in a report on Tuesday. “Mutual fund outflows were less pronounced in Wednesday’s report, likely reflecting prior the two weeks’ moderately positive market returns.
“The new issue slate is remarkably light for the upcoming week and should serve as an effective support mechanism absent an outsized surge in the benchmark U.S. Treasury curve,” he said. “Next week, we expect to report on any fallout from mid-term elections and potential effects on infrastructure and the tax-exempt municipal bond market.”
The Virginia College Building Authority competitively sold almost $215 million of educational facility revenue bonds and taxable bonds in two sales on Tuesday.
Public Resources Advisory Group was the financial advisor while Kutak Rock was the bond counsel.
Citigroup won the $137.795 million of Series 2018A tax-exempts for the public higher education financing program with a true interest cost of 3.4974%. JPMorgan Securities won the $77.15 million of Series 2018B taxables with a TIC of 4.4209%.
Proceeds from both sales will be used to acquire institutional notes to provide funding for capital projects at public higher educational institutions.
The deals are rated Aa1 by Moody’s Investors Service and AA-plus by S&P Global Ratings and Fitch Ratings.
Since 2008, the authority has sold roughly $9.08 billion of securities, with the most issuance occurring in 2009 when it issued $1.69 billion. The VCBA saw a low year of issuance in 2008, when it sold $144 million.
RBC Capital Markets priced Tacoma, Wash.’s $101.71 million of sewer revenue bonds.
The deal is rated Aa2 by Moody’s and AA-plus by S&P and Fitch.
Citi priced the Stockton Public Financing Authority’s $144.825 million of Series 2018A water revenue refunding green bonds.
The deal is rated A-minus by S&P and BBB-plus by Fitch except for the 20202037 maturities which are insured by Build America Mutual and rated AA by S&P.
Goldman Sachs is slated to price the Central Plains Energy Project’s $527 million of gas project revenue bonds, including fixed rate, LIBOR index rate and SIFMA index rate bonds. The deal, coming out of Nebraska, is rated A3 by Moody’s and A by S&P.
Piper Jaffray is expected to price Portland Community College, Ore.’s $172 million of full faith credit pension taxable bonds on Tuesday. The deal is rated Aa1 by Moody’s and AA-plus by S&P.
Municipal bonds were mostly stronger on Tuesday, according to a late read of the MBIS benchmark scale. Benchmark muni yields fell as much as one basis point in the one- to 12-year and 20- to 28-year maturities, rose less than a basis point in the 13- to 18-year maturities and were unchanged in the 19- and 29- and 30-year maturities.
High-grade munis were mostly stronger, with yields calculated on MBIS’ AAA scale falling as much as one basis point in the five- to 13-year and 19- to 27-year maturities, rising less than a basis point in the one- to four-year, 14- to 17-year and 29- and 30-year maturities and remaining unchanged in the 18- and 28-year maturities.
Municipals were mixed on Municipal Market Data’s AAA benchmark scale, which showed the yield on the 10-year muni general obligation remaining unchanged while the yield on 30-year muni maturity rose two basis points.
Treasury bonds were mixed as stocks traded higher. ◽