Municipals were steady to weaker in spots Tuesday as the $800-million-plus general obligation bond deal from the state of Washington took focus in the primary. U.S. Treasuries were weaker and equities rallied.
Triple-A yields rose a basis point while UST saw yields rise again, as much as five to six, with larger losses on the short end.
Muni to UST ratios fell slightly as a result, sitting at 63% in five years, 81% in 10 years and 94% in 30 years, according to Refinitiv MMD’s 3 p.m. read. ICE Data Services had the five at 63%, the 10 at 83% and the 30 at 95% at a 3:30 p.m. read.
In the competitive market, Washington sold $843 million of exempt and taxable GOs.
Washington (Aaa/AA+/AA+/) sold $243.375 million of tax-exempt various purpose GO utility bonds, Series 2023A, Bidding Group 1, to Citigroup Global Markets, with 5s of 8/2029 at 2.30%, 5s of 2032 at 2.54% and 5s of 2037 at 2.93%, callable 8/1/2032.
The state also sold $245.930 million of tax-exempt various purpose GO utility bonds, Series 2023A, Bidding Group 2, to Morgan Stanley & Co., with 5s of 8/2038 at 3.05%, 5s of 2042 at 3.25% and 5s of 2043 at 3.30%, callable 8/1/2032.
Washington sold $213.825 million of tax-exempt various purpose GO utility bonds, Series 2023A, Bidding Group 3, to BofA Securities, with 5s of 8/2044 at 3.35% and 5s of 2047 at 3.45%, callable 8/1/2032, as well.
Additionally, the state sold $140.130 million of taxable various purpose GO utility bonds, Series 2023T, to J.P. Morgan Securities. All bonds priced at par: 3.25s of 8/2023 at par, 3.34s of 2027 at par and 3.5s of 2029 at 3.61%, noncall.
In the negotiated market, Citigroup Global Markets priced for Main Street Natural Gas (A3///) $709.82 million of gas supply revenue bonds with 5s of 6/2024 at 2.92%, 5s of 2027 at 3.54%, 5s of 2029 at 3.95%, callable 3/1/2029; the largest tranche, $665.495 million, mature in 12/2054 with a 5% coupon to yield 4%, callable 3/1/2029, mandatory tender date 6/1/2029.
Last week saw positive action in fixed-income, with USTs and tax-exempt munis ending with mostly lower yields, USTs along a flatter curve and munis a steeper one, according to Matt Fabian, a partner at Municipal Market Analytics.
This positive performance, he said, “occurred against the backdrop of the greatest 12-month inflation rate increase in four decades and an expected Fed rate hike of 75-100 basis points next week.”
Looking forward, though, a myriad of factors, including spiking fuel prices, fallout from the Russian invasion of Ukraine and the heat wave, “will facilitate recessionary(ish) economic outcomes by year end, so lower long-bond yields are not unreasonable either,” he said.
“Mutual fund inflows were positive last week — a good start but easily reversible once the Fed raises its target rate again—and fund NAVs are up fairly well, including HY which faces the largest challenges into year-end.”
On the back of fund inflows, and despite a larger new-issue calendar, “customer net buying strengthened last week, fueled by institutional-sized purchases,” he said.
“Dealers, who let balances run down to their lowest level since 1Q21 heading into last week were forced to trade amongst themselves to source product, boosting performance,” he said.
Tax-exempt municipal prices will also be set by scarcity and expected scarcity, he said. Bond Buyer 30-day visible supply sits at $12.41 billion.
Muni prices will be particularly affected “if current government budget austerity is intensified by cyclical financial crises ahead,” he added.
“The last to be worsened by widespread state and local tax cuts, the use of one-time federal and local cash for recurring spending items, fractured pension ratios, and still steep employee and construction/maintenance costs; these all imply thinner new-money issuance (and so tighter supply, tighter spreads) going forward,” Fabian said.
These vectors, he noted, have another downside, as “rating agencies are setting expectations for fewer upgrades ahead, and budget-related headlines are likely to become negative eventually.”
“The municipal market’s upward credit trajectory — and investor optimism — likely peaked during 1H2022,” Fabian noted. Along with other market indications, he noted more conservatism in issuance trends, including a pull-back in unrated and high-yield issuance.
“In other words, investor appetite for riskier transactions waned in 1H22,” Fabian said. “But while that the metric may rise in the near term, strong fundamental factors — mainly the supply-demand imbalance — will likely keep the gains modest … for at least the near-to-medium term.”
Secondary trading
Connecticut 5s of 2022 at 1.40%. District of Columbia 5s of 2023 at 1.56%. NYC 5s of 2024 at 1.43%-1.80% versus 1.84% on 7/11. Washington 5s of 2025 at 1.77% versus 1.73%-1.77% Monday and 1.77% on 7/15.
NYC 5s of 2027 at 2.19%-2.17%. North Carolina 5s of 2029 at 2.33%. Georgia 5s of 2029 at 2.26%. NYC TFA 5s of 2030 at 2.61%-2.58%. Triborough Bridge and Tunnel Authority 5s of 2031 at 2.54% versus 2.57%-2.59% on 7/11.
Georgia 5s of 2033 at 2.56% versus 2.56% on 7/15. District of Columbia 5s of 2035 at 2.90% versus 2.90%-2.89% Monday and 2.97% on 7/13. Maryland 5s of 2036 at 2.71%.
District of Columbia 5s of 2041 at 2.71%. LA DWP 5s of 2042 at 3.19%-3.18%.
AAA scales
Refinitiv MMD’s scale was cut up to two basis points out long the 3 p.m. read: the one-year at 1.40% (unch) and 1.70% (unch) in two years. The five-year at 2.00% (unch), the 10-year at 2.44% (unch) and the 30-year at 3.00% (+2).
The ICE municipal yield curve was cut one to two basis points: 1.45% (+1) in 2023 and 1.74% (+1) in 2024. The five-year at 1.99% (+1), the 10-year was at 2.48% (+1) and the 30-year yield was at 3.03% (+2) near the close.
The IHS Markit municipal curve was unchanged: 1.40% in 2023 and 1.72% in 2024. The five-year was at 2.00%, the 10-year was at 2.44% and the 30-year yield was at 2.98% at a 4 p.m. read.
Bloomberg BVAL was steady: 1.45% (unch) in 2023 and 1.72% (-1) in 2024. The five-year at 2.02% (unch), the 10-year at 2.48% (-1) and the 30-year at 3.00% (+1) at 3:30 p.m.
Treasuries were weaker.
The two-year UST was yielding 3.225% (+5), the three-year was at 3.228% (+5), the five-year at 3.146% (+4), the seven-year 3.123% (+3), the 10-year yielding 3.014% (+2), the 20-year at 3.425% (flat) and the 30-year Treasury was yielding 3.175% (+2) at 3:45 p.m.
Primary to come
The New York City Transitional Finance Authority (Aa2/AA/AA/) is set to price Wednesday $557.285 million of tax-exempt building aid revenue bonds, Fiscal 2023 Series S-1, Subseries S-1A, serials 2023-2042. RBC Capital Markets.
The Metropolitan Water District of Southern California (Aa1/AAA//) is set to price Wednesday $251.780 million of water revenue refunding bonds, 2022 Series B, serials 2026-2040. Siebert Williams Shank & Co.
The district (/AAA/AA+/) also is set to price Wednesday $135.420 million of taxable special variable rate water revenue refunding bonds, 2022 Series C. Goldman Sachs & Co.
The Humble Independent School District, Texas, is set to price Thursday $181.700 million of unlimited tax school building bonds, Series 2022, insured by the Permanent School Fund Guarantee Program. Jefferies.
The New York City Housing Development Corporation (Aa2/AA+//) is set to price Thursday $181.670 million of sustainable development multi-family housing revenue bonds, 2022 Series E. Barclays Capital.
The McKinney Independent School District, Texas, (Aaa/AAA//) is set to price Thursday $108.030 million of unlimited tax school building and refunding bonds, Series 2022, insured by the Permanent School Fund Guarantee Program. Piper Sandler & Co.
The Indiana Finance Authority (/A-/A/) is set to price Wednesday $100 million of Reid Health hospital revenue bonds, Series 2022. Morgan Stanley & Co.
Competitive:
The Metropolitan Government of Nashville, Tennessee, (Aa2/AA/) is set to sell $286.325 million of general obligation improvement bonds, Series 2022B, at 11:30 a.m. eastern Wednesday.
The Metropolitan Government of Nashville, Tennessee, (Aa2/AA/) is set to sell $334.045 million of general obligation improvement bonds, Series 2022A, at 11 a.m. Wednesday.
The New York State Thruway Authority is set to sell $436.450 million of tax-exempt climate bond certified state personal income tax revenue green bonds Series 2022C, Bidding Group 1, at 10:30 a.m. eastern Thursday.
The New York State Thruway Authority is set to sell $296.495 million of tax-exempt climate bond certified state personal income tax revenue green bonds Series 2022C, Bidding Group 2, at 11 a.m. Thursday.
Miami-Dade County Public Schools is set to sell $400 million of tax anticipation notes, Series 2022, at 11 a.m. Thursday.