Municipal New Issuance: New Issuance for the week totaled approximately $6.4 billion in debt with the largest deal being the $1.2 billion taxable Dallas Fort Worth International Airport Revenue issue rated Moody’s A1, S&P A (neg) and Fitch A+ (neg). The California State Department of Water also issued a $1 billion taxable and tax exempt debt, both issues saw strong demand from a broad range of investors. The Dallas Fort Worth issuance is one the few airport bond deals that have been priced since air travel grounded to a virtual halt due to the coronavirus pandemic. The 10-year yield initially came at a spread of 160 basis points over treasuries, which garnered more than $9.8 billion in orders on a $19 million maturity. With that large amount of over subscription, the underwriter repriced that maturity it to 155 basis points over treasuries. The California State Department of water issuance was also well received as it tightened from its initial offering and has been actively trading in the secondary market.

Municipal Secondary Trading: Last week we saw roughly $25.8 billion in secondary trading compared to over $39.2 billion the week prior as many traders and portfolio managers looked to put money to work and focused their attention on the new issue market. Professional money managers continue to monitor the next stimulus package included and are especially sensitive that it may include any aid to states and local municipalities. We did see a slight decrease in bids-wanted last week, as institutional investors put roughly $1.9 billion up for the bid compared to $2.4 billion the week prior.

Municipal Spreads: Municipals had a nice rally for the week as yields fell across the curve. As for the Bloomberg benchmark 10- year note those fell 6.3 basis points to 0.637% for the week. With the strength of the rally municipals outperformed treasuries as they are now yielding 118.18% of treasuries compared to 118.64% a week ago and continue to outperform treasuries as the yield was 130.29% a month ago.

Following the success of the Dallas Fort Worth International Airport issues the airline industry continues to work to expand service and flight loads as additional airport authorities are planning on following suit and issue new debt. The Los Angeles International and San Francisco International Airports are both planning on issuing later this month. Recent successful pricings have shown that there is still is strong demand for airport bonds as seeing them nearing their normal spreads. A-rated airport bonds and Bloomberg benchmark securities has fallen to below 1% for the first time since the end of March, and are less than half of the record highs we saw in May.

 

Earlier in the week we finally saw the Republican’s HEALS Act and Democrat’s HEROES Act proposed relief packages, which included $10 billion in aid for airports on the Republican’s relief package but was missing from the Democrat’s package. Under the HEALS act it states that aid “shall be available for any purpose for which airport revenues may lawfully be used, including operations, public health, cleaning, sanitation, janitorial services, combating the spread of pathogens, and debt service payments.” If this is left on the combined Republican and Democrats relief bill, we should expect to see spreads to continue to tighten to levels close to their normal levels.

Municipal Supply: Supply for the week will continue to be light as the summer months continue. We are expected to see roughly $6.4 billion on new issues on the negotiated side, with the largest deal being a $1.37 billion Los Angeles County Metropolitan Transportation Authority followed, by a $900 million State of Hawaii taxable general obligation bonds. The Long Island Power Authority will also be issuing $ 500 million in revenue bonds with some being mandatory tender bonds.