Municipal New Issuance: The second week of December saw new issue negotiated calendar totaling almost $10 billion. The largest deal for the week was the Puerto Rico Aqueduct & Sewer $1.3 billion revenue bonds and the next largest deal was the $950 million Brightline Florida Passenger Rail Project. AmeriVet participated in two negotiated issues for the week as syndicate members for the $452 million New York City Housing Development Corp as well as the $284 million University of Connecticut General Obligation issue. Away for the general market, the New York MTA borrowed $2.9 billion from the Federal Reserve at rates considered to be lower than the Authority would have achieved in the open market. Adding this financing to the calendar supply would have reached almost around $13 billion. The Brightline issue was an interesting issue given passenger demand had not met earlier ridership projections Fortress offered to buy back $250 million of the existing Florida bonds at par as an incentive to bring additional buyer support to the deal.

Municipal Secondary Trading:  Trading volume for the week totaled to about $29.4 billion down from the week prior of $40 billion. The majority of the trading was driven by institutional investors buying  roughly 53% of the overall volume for the week.  According to Bloomberg client bids-wanted totaled to about $2.9 billion which was down from the prior week but still around the average volume of bids-wanted we see during a normal week.

Municipal Spread: Municipal bond yields for the week continue to rally the week but lagged Treasuries only slightly as treasuries faired a little better than municipals. Currently municipal debt maturing in 10 years is now yielding 76.94% of Treasuries compared 74.07% a week ago and 89.57% a month earlier. The 10-year Bloomberg benchmark 10-year notes fell 3.3 basis points for the week to 0.68% continuing the rally we’ve had for the past 8 months which no one expected to see back in March when Coronavirus pandemic started. The municipal bond curve for the week flattened only slightly by 1 basis point to 134 basis-points for the week.

This past week the New York MTA borrowed $2.9 billion from the Federal Reserve emergency credit line for state and local governments which marks the second time the Authority has gone to central bank because of revenue shortfalls due to the deep drop in ridership volumes due to the coronavirus pandemic. The transit agency sold bond-anticipation notes with a 1.33% coupon maturing in 2023 to the Federal Municipal Liquidity Facility. The MTA and the State of Illinois have been the only two issuers to borrow from the Fed so far and that number is not expected to grow as the program ends at on 12/31. Illinois is also expected to tap the Fed for an additional loan next week as it seeks additional support from the Fed.

 

This week marked a record year for taxable bond issuance as state and local governments, as well as colleges and hospitals issued $176 billion in taxable bonds. This year roughly a third of the issuance has been taxable bonds thanks to falling interest rates as well as President Trump’s 2017 tax cut that removed states and cities ability to sell tax-exempt bonds for advance refunding’s. With the cost of refinancing debt at record lows it made economic sense for issuers to use taxable debt rather than pay its outstanding tax-exempt bonds. As long as yields continue to be low, we should continue to see issuers switch to taxable bonds.

 

With states and local governments and agencies, as well as universities issuing more taxable debt this year, it has attracted a more diverse number of buyers particularly from overseas. With much of the world’s debt yield at or near zero many overseas buyers are buying taxable municipals which have higher yields and are of better credit quality than many comparable corporate borrowers.

Municipal Supply: As expected the negotiated calendar for the week will be roughly $5.9 billion for the week significantly down from a week ago, as many will wait until the new year to issue more debt. The majority of the issuance will be coming from only four deals this week. The City of New York General Obligation will be issuing $1.5 billion in taxable debt, The State of Connecticut will be issuing $800 million which AmeriVet will be part of the syndicate. Harris County, Texas Toll Road will be issuing about $437 million in refunding bonds, and The Illinois Finance authority will be issuing $425 million. AmeriVet will also be part of the syndicate for the $314 million New York City Health and Hospital bonds. The negotiated calendar for the rest of the year should be very light as we reach the Christmas Holiday and New Year’s.