Tuesday, May 26, 2015

Municipal Bond Market
Munis are stronger this morning after an extremely quiet trading before the holiday weekend.  New issuance will be light with the shortened week with about $6bln scheduled.  The highlight of the calendar will be the pricing of $800mln Chicago GOs which was delayed due to the ratings downgrades over the past few weeks.  The deal should come on the cheaper side in order to get it down.  We have seen substantial pricing pressure in all Chicago paper as most funds continue to sell.  30-day supply is slight higher this morning with $13.4bln scheduled over compared to about $12.2bln on Friday.

Muni funds recorded their third straight week of outflows with $91mln leaving funds.  The trend over the first half of the year has been inflow money flowing directly into the primary and supporting any new issue deals.  This should put some pressure on the primary over the next few weeks as we should new issue bounce back to above average levels after the shortened week.

PR paper continues to rally after legislators passed a bill that would raise the sales tax.  Benchmark GO 8’s of 2035 traded as high as $83.25 (9.94%) after trading as low as $77.125 (10.80%) in early May.  At this we point we are starting to see demand from both traditional and non-traditional muni buyers.   Muni funds are starting to dip back into noninsured PR paper, however, the emphasis continues to remain on the insured. 

30 Day visible supply: $13.4bln