Friday, May 15, 2015

Municipal Bond Market
Municipals are stronger this morning after trading weaker yesterday.  We continue to see extremely light volume in the secondary market with the majority of investors on the sidelines monitoring the current situations in both Chicago and Puerto Rico.  We expect to see a slight increase in secondary flow today with the majority of the week’s new issue calendar wrapped up.   30-day supply is slightly larger this morning with about $13.84bln on tap compared to about $11.5bln yesterday.

Muni funds reported outflows for the second straight week with $32.4mln of cash leaving funds.  This should put some pressure on the new issue market which has been the home for high grade inflow money over the first few months of the year.

In credit news, PR lawmakers reached an agreement with the governor on a proposal to raise the islands sales tax.  The plan will increase the already outstanding sales tax to 11.5% from 7%.  The tax increase is part of a 9 month transition that will lead to the implementation of the VAT Tax by the end of the year.  This event is credit positive in the short term for COFINA holders; however, it still leaves a lot of uncertainty about a potential new deal which the island views as a necessity.  PR Benchmarks are slightly stronger this morning after the news with bonds being offered @ 10.40% versus trading @ 10.50% late in the day yesterday.

30-Day visible supply: $13.84bln