Weekly Muni Snapshot | 2 March 2020
Municipal New Issuance: Last week, US State and local governments sold about $13.5 billion in new issuance via negotiated underwritings. The most notable deals were the $4.5 billion Buckeye Tobacco deal, the $1.8 billion University of California Medical Center, and the $700 million Los Angeles California Department of Airports (LAX).
In the Buckeye Tobacco deal, the bonds maturing in 2055 were originally priced with a yield of 3.875. The bonds immediately started to trade with an average yield of 3.241, trading up about 64 basis points. Showing signs that people are looking for more yield.
The LAX deal sold at a huge premium, as the 2030 bonds sold with a dollar price of 137.02, which could be a sign that retail investors are putting a hold on inflows to municipal funds for the foreseeable future.
Municipal Secondary Trading: Secondary trading in municipals was up slightly, as we saw almost $40 billion, as compared to the previous week of $37.4 billion in trades.
Investors offered $3.22 billion for sale via bid wanted lists this past week, which was up 50% from the prior holiday week of $2.15 billion.
Municipal Spread: With the Coronavirus having a stronghold on equities, worldwide investors have sifted to fixed income securities, which has pushed treasury yields to its all-time lows. Despite municipals hitting their all-time lows as well, they continued to lag treasuries as the 10-year ratio is now 83.21% of treasuries versus 75.61% the week prior.
This week the municipal curve continued to flatten by 13.9 basis points, showing signs that longer dated bonds have outperformed the shorter end. Long bonds have returned 4.55% compared to 3% for the overall market this year. Bonds maturing in 30 years had its biggest drop since 2013 as they fell 20 basis points this week as they fell to 1.47% on Friday the lowest since 2011.
Even before Coronavirus outbreak municipal yields came close to historical low rates. This week saw the 60th straight week of inflows into municipal funds as $2.3 billion was added, an increase of $1.8 billion form the prior week.
Municipal Supply: In the first week of March, roughly $8.56 billion in supply is expected with the City of New York planning to sell $1.3 billion, and the State of Louisiana selling $366.3 million. With Yields being so low, we would expect to see some aggressive pricing once again.
New York continues to have the most debt coming due in the next 30 days with $2.44 billion followed by South Carolina with $997.9 million due. The New York State Urban Development Corp is the single issuer with the largest amount of debt maturing with $676.1 million.