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Interactive Brokers’ senior market analyst Steven Levine provides some insights into the muni bond market, with highlights on Los Angeles TRANs issuance and Intel Revenue Bonds out of Chandler, Arizona. Find out more in the latest article additions to our Muni Bond Series LA Set to Issue US$1.7bn in TRANs to Help Cover Pension Costs and Intel Sees Project Funding on Horizon as Semiconductor Sector Gets Hammered at IBKR Traders’ Insight today.
The dynamics in the muni market of solid demand and a dearth of new supply appear to remain firmly in place, and with the recent rise in the prices of U.S. Treasuries, it seems the 10-year Muni-Treasury ratio has also climbed higher. Analysts at Janney Montgomery noted that the relationship between muni bonds and government notes has been moving higher after reaching a multi-decade low early last week, as tax-free yields have failed to match the momentum in the Treasury market.
Against this backdrop, some proposed sales have crossed the wires, including US$500m worth of revenue bonds from Chandler, Arizona’s Industrial Development Authority to help bolster Intel Corp’s local chip-making plants. The transaction emerges at a volatile time for the semiconductor sector, amid heightened uncertainties over U.S.-China trade negotiations.
It appears conducting business in China has become more sensitive for many of the largest U.S. tech companies, given the harsh spotlight thrown onto Shenzhen-based telecoms equipment maker Huawei. Firms such as Apple and Alphabet’s Google, among others, are likely to face diminished growth prospects, amid what may be a protracted period of confrontation and volatility in the region.
For its part, Intel had said it planned to pour more than US$7bn into completing its semiconductor factory in the City of Chandler, with aims to use a 7 nanometer (nm) manufacturing process, as well as create over 10,000 jobs in the state. ***In other deals, the County of Los Angeles is eyeing a sale of US$700m worth of Tax and Revenue Anticipation Notes, or TRANs, amid a massive increase in the city’s budget and turnaround in its economic health.
LA Mayor Eric Garcetti’s proposed budget for the coming year anticipates an increase in revenue growth of more than 6% over the previous year – which is mainly expected to flow-in from property, business and sales taxes. According to the county’s Budget and Finance Committee, almost 16% of the US$10.65bn is slated to comprise TRANs issuance, which will be earmarked to help cover the cost of the city’s employee pension obligations.
The city has been working with the Coalition of LA City Unions to finalize a labor contract for fiscal years 2019 through 2021, and although pension liabilities are likely to rise, certain of LA’s economic trends appear to see ongoing improvements. The Los Angeles Economic Development Corp said LA’s growth is “roughly keeping pace with state economy and exceeding national growth.”
The expansion will mainly be fueled by an additional 60k jobs annually in sectors such as health care and professional and business services. However, on the downside, the organization noted that the likelihood of buying and owning a home and accruing associated equity has become “increasingly unlikely.” The economic research group cited figures from the California Association of Realtors, which estimated that in the fourth quarter last year less than 25% of households in the county could afford a home.
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