Monday, May 18, 2015

Municipal Bond Market
Munis are weaker this morning after mixed trading to end the week.  We expect the week ahead to be completely dominated by the primary with about $9bln on tap.  The majority of deals will come earlier in the week as we head into the holiday weekend.   We could see some pressure on munis as fund flows provide less cash to support the new issue market and secondary flow remains nonexistent.  The market continues to focus on PR & Chicago with both names owned by a significant amount of funds.  Both names firmed up heading into the weekend after a sharp sell off earlier in the week.  30-day supply is unchanged this morning at $13.84bln.

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 PR news, benchmark GOs rallied significantly Friday after 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.  We strong demand in GO debt after the announcement with bonds trading as high as 81.75 (10.15%) compared to $79.25 (10.50%) on Thursday.

30-Day visible supply: $13.84bln