Thursday, May 21, 2015

Municipal Bond Market
Munis are weaker this morning as they continue to underperform the rest of the market.  We saw very little focus on the secondary yesterday with limited liquidity.  Volume should be light today as we head into the holiday weekend and should see full attention on the secondary with all of the week’s larger deals priced.  The Florida Citizens Property Insurance Corp priced $700mln bonds yesterday with the 5’s of 2018 priced @ 1.51%.
I think that we should continue to see pressure on munis over the next few weeks as we continue to see huge new issue numbers and lackluster fund flows.   New issuance has almost doubled in the first two weeks of May compared to last year.  So far we have seen $18bln in supply this month compared to under $10bln in 2014.   30-day supply is mostly unchanged this morning with $13.54bln versus $13.9bln at yesterday.

In credit news, Puerto Rico legislators will vote today on a bill that will raise the islands sales tax from 7.0% to 11.5%.   PR paper is slightly firmer this morning with benchmark GOs trading around $82 (10.10%).  Passing the bill would be credit positive for the island in the short term; however, we continue to see substantial challenges down the road.  Benchmark GOs should continue to trade in this range until we get more color on the possibility of a new deal. 

30 Day visible supply: $13.50bln