Weekly Insights of a Municipal Bond Trader

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A LOOK AHEAD – WEEK OF APRIL 1ST, 2019

The rally continues!

Municipal performance year to date is the best quarterly gain in 5 years. According to Bloomberg, tax-exempt debt returned 2.87%, the most since Q1 2014. The recent bond market rally, driven in large part to the recent Fed comments signalling they are done raising rates coupled with record mutual fund inflows, have all boosted municipals to there best start in years. We are now entering the month of April which we have noted may be a better entry point into the market. As mid-April approaches and tax day falls upon us we believe the calendar will build and inflows will subside. We will see if we are correct or not.

 

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FUND FLOWS

Year to date inflows have now reached $22.5bn. Twelve consecutive weeks of inflows. For the week ending March 27th, high-yield funds received $492mn of inflows, intermediate funds $319mn, and long-term funds had $1.1bn of inflows.

Municipal ETF’s registered $291mn of inflows.

SPOTLIGHT

High Yield New Issue – Virgin Trains USA 2019 Private Activity Bonds $1.5bn New Issue (Non-Rated)

The highly anticipated, high profile, non-rated, high yield deal of the year to date will be this week’s new issue private activity bonds being issued for the Virgin Trains USA (formally known as All Aboard Florida / Brightline). The company is owned by Florida East Coast Industries, owned by Fortress Investment Group LLC, which was sold to Japan’s SoftBank Group Corp in 2017. The proceeds of the deal will pay for a portion of the construction of rail and ancillary infrastructure between West Palm Beach and Orlando. Initial price talk and structure on the deal is in the 6.50%-6.75% area with hard put dates of 2024-2029. Given the recent robust inflow cycle in municipal funds and particularly in high yield municipal funds, we anticipate this deal will be well subscribed for. We could also see some cross-over buyers of the securities.

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