Municipals end week flat to firmer ahead of $6 billion slate; munis outperform green bonds

By Sheri Kasprzak

New York, Oct. 10 – Municipals rounded out a quiet session somewhat firmer in spots as the market prepared for about $6 billion of new offerings in the week ahead, market sources said.

Even though the market is closed Monday for the Columbus Day holiday, investors can expect another substantial round of deals for the week, including a $1 billion sale from the Dormitory Authority of the State of New York.

Meanwhile, yields were flat to a touch lower on Friday. Intermediate yields saw some firming in the afternoon, a trader said.

Dasny offers bonds

Dasny plans to price $1 billion of series 2014 state sales tax revenue bonds (Aa1/AAA/) through BofA Merrill Lynch, Jefferies & Co. and Ramirez & Co. Inc.

The deal includes $963.5 million of series 2014A tax-exempt bonds and $36.5 million of series 2014B taxable bonds.

Proceeds will be used to finance capital improvements at the City University of New York; road, highway, parkway and bridge improvements under the state’s Dedicated Highway and Bridge Trust Fund program; state grants for libraries; the construction of a state court officer’s training facility in Brooklyn and hazardous waste remediation.

Green bonds haven’t hit stride

Moving to data, although municipals continue to perform well despite stock market volatility, green bonds haven’t yet taken off, according to a report from J.R. Rieger, global head of fixed-income indexes at S&P Dow Jones Indices.

“The growing green bond market has not performed as well as other fixed-income asset classes, as the total return of the S&P Green Bond index is a modest 0.15% year-to-date,” Rieger wrote Friday.

“Green bond issuance is up as the index now tracks over $40 billion in green bonds up from $14.5 billion at year-end.”

Comparatively, the S&P Municipal Bond index reached an 8.64% year-to-date total return as the equity markets deal with a tumultuous fourth-quarter start, said Rieger. High-grade munis, tracked by the S&P Municipal Bond 20 Year High Grade index, have returned 20% this year to date.

“Overall, municipal bonds are outperforming U.S. Treasury and corporate bonds as demand for tax-free income remains strong,” Rieger wrote.

“Low new-issue supply is helping keep the supply-demand equilibrium out of kilter. Only on the long end are U.S. Treasury bonds outperforming municipal bonds.”

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