MuniLand: Muni Market Digests Largest Weekly Issuance of the Year…


As we mentioned last week, municipal demand has far outstripped supply YTD and pushed municipal-to-treasury ratios to five-year lows for bonds maturing within ten years.  $13 billion in bonds was issued last week, including deals from the State of California, the City of Chicago, and Houston Combined Utility System, as well as the high-yield G.O. offering from the Commonwealth of Puerto Rico, and the new debt was easily digested.  Demand for municipal debt was so strong that the City of Chicago upped its debt offer to $880mm from $400mm, folding all of its 2014 GO borrowing into one deal. The issue was split roughly evenly between a tax-exempt series and a single taxable term bond.  The single term bond structure was also used by Puerto Rico earlier in the week; the demand for that deal did not go unnoticed and may result in this structure becoming more popular.  A large portion of the demand in the PR deal came from institutional and crossover buyers, which likely influenced Chicago’s decision to use the same structure but offer taxable bonds in order to tap into that same pool of interest.  Bloomberg reported on Friday that the Fed Flow of Funds Report showed institutional investors such as US banks, life insurance companies, and hedge funds are larger and more prominent players in the space once dominated by households.  All in all, the week’s heavy supply of both investment and below-investment-grade municipal debt was met by overwhelming demand, leading to continued support for rich municipal valuations.