Municipals rally along with robust Treasuries ahead of $6 billion supply; Miami-Dade bonds set

By Sheri Kasprzak

New York, Jan. 5 – Municipals followed Treasuries higher to kick off the first full week of 2015, with yields falling 4 to 5 basis points across the curve, traders reported.

Long bonds were the strongest performer of the session. Munis in general were stronger but underperformed Treasuries. The 30-year Treasury yield fell by 9 bps on the day, and the benchmark 10-year Treasury yield fell by 8 bps.

Looking to the week ahead, about $6 billion in new issuance is expected, a big boost from the holiday-induced doldrums of last week. By way of comparison, just $150 million of new issuance hit the market during the past week thanks to the Christmas and New Year’s Day holidays.

Meanwhile, inflows into municipal mutual funds continue, with $4 billion reported between Thanksgiving and New Year’s Eve, according to Tom Kozlik, municipal credit analyst with Janney Montgomery Scott LLC.

December issuance soars

Elsewhere, December’s new-issue action took off, with $38 billion for the month reported – the highest volume for the month of December since 2010 when issuers flocked to the market before Build America Bonds went the way of the dinosaur.

Overall, 2014’s issuance came in at $334.4 billion, topping 2013’s $334.1 billion, according to Kozlik.

“This overall number is well above the $250 to $275 billion level we forecast at the beginning of 2014; however, the reason for the heavier issuance was a higher level of refundings,” Kozlik said Monday.

“This occurred because interest rates stayed lower, actually fell through the year, longer than we expected.

“New money issuance was lower, and we expect the trend to continue over the next few years, as revenues throughout the municipal sector will be unable to support higher debt issuance. Issuers sold only $144 billion of new money bonds in 2014 versus $161 billion in 2013. There was $125 billion versus $111 billion [2014 and 2013, respectively] of refunding issues and $64 billion versus $61 billion [2014 and 2013, respectively] of combined new money and refunding issuance sold.”

Miami-Dade leads pack

Heading up Tuesday’s primary action will be Miami-Dade County, Fla.’s $371.93 million offering of series 2015 general obligation bonds.

The bonds (Aa2/AA/) will be sold in three tranches through competitive bid.

Proceeds from the sale will be used to refund existing debt and finance projects for the county’s public health trust program.

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