Muni market kicks into gear with NYC waters pricing for retail investors

Bonds

The municipal primary kicked into swing Monday with New York City Municipal waters pricing for retail investors while the secondary was quiet in light trading leading to a steady tone, even as U.S. Treasuries were weaker and equities were mixed near the close.

In the primary market Monday, Siebert Williams Shank held a one-day retail order for $882.535 million of water and sewer system second general resolution revenue bonds Fiscal 2024 Series BB, from the New York City Municipal Water Finance Authority (Aa1/AA+/AA+/). The first tranche, $204.290 million of Subseries BB-1, saw 5.25s of 6/2054 at 3.92%, callable 12/15/2033.

The second tranche, $678.245 million of Subseries BB-2, saw 5s of 6/2028 at 2.58%, 5s of 2029 at 2.57%, 5s of 2034 at 2.67%, 5s of 2039 at 3.13%, 5s of 2044 at 3.59% and 5.25s of 2047 at 3.72%, callable 12/15/2033.

For most of February, it seemed there would be “another monthly loss which would have been the fourth in a row for February,” said Jason Wong, vice president of municipals at AmeriVet Securities.

However, with the extra day, he said munis “were able to rally” as yields were bumped a basis point or two across the curve, leading February returns “into the green” with a return of 0.13%. This was the first month of positive returns for the month of February since 2020, Wong noted.

Despite this “small marginal gain,” munis outperformed USTs by 144 basis points.

Munis maturing in 20 years saw the largest monthly gain of 0.24% while the munis maturing in seven years saw the smallest return of just 0.04%, he noted.

The muni market “exhibited similar themes from the past few weeks as extremely rich valuations and the upcoming unfavorable supply/demand picture have led to a measured buyer base,” said Birch Creek Capital strategists in a report.

The two-year muni-to-Treasury ratio Monday was at 59%, the three-year at 58%, the five-year at 58%, the 10-year at 58% and the 30-year at 82%, according to Refinitiv Municipal Market Data’s 3 p.m. EST read. ICE Data Services had the two-year at 61%, the three-year at 60%, the five-year at 59%, the 10-year at 59% and the 30-year at 82% at 3:30 p.m.

There is little interest in long maturity bonds in the 20- to 30-year area and “most trades are being done on swap just to move around the deck chairs,” according to Birch Creek.

Dealers were left with “some chunky balances” from competitive deals, but once USTs firmed into the end of the week, buyers “stepped in to clean those up,” they said.

Separately managed accounts “continue to be the main pocket of strength,” with the most demand coming from the five- to 20-year portion of the curve, according to Birch Creek strategists.

Dealers have also “reported customer interest in different names, especially with some spread to it,” they said.

High-grade healthcare bonds, for example, have been “very active as a means for investors to pick up additional yield,” they noted.

Fund flows continue to support the preference for higher yields, Birch Creek strategists said.

Municipal bond mutual funds saw inflows of $72.3 million for the week ending Wednesday, ending three consecutive weeks of outflows. The previous week saw outflows of $4.1 million, according to LSEG Lipper data.

There were $342 million into long-term funds and $264 million out of intermediate funds.

Similarly, investment-grade funds saw $280 million of outflows, while high-yield funds saw $353 million of inflows, the data shows.

Secondary trading last week was at $34 billion with 55% of the trades being dealer sells. Clients put up around $4.59 billion up for the bid with last Tuesday’s $1.3 billion up for bid the largest amount of the week, according to Bloomberg.

The primary will be active this week with more large deals to come led by the Regents of the University of California (Aa2/AA/AA/) is set to price Tuesday $997.735 million of general revenue bonds led by Jefferies. A portion of the proceeds will refund up to $1.2 billion of the issuer’s outstanding Build America Bonds, as more issuers begin to refund their BABs.

AAA scales
Refinitiv MMD’s scale was unchanged. The one-year was at 2.97% and 2.73% in two years. The five-year was at 2.44%, the 10-year at 2.46% and the 30-year at 3.59% at 3 p.m.

The ICE AAA yield curve was cut up to two basis points: 2.99% (unch) in 2025 and 2.78% (+1) in 2026. The five-year was at 2.46% (+1), the 10-year was at 2.48% (+1) and the 30-year was at 3.56% (+1) at 3:30 p.m.

The S&P Global Market Intelligence municipal curve was unchanged: The one-year was at 2.95% in 2025 and 2.73% in 2026. The five-year was at 2.43%, the 10-year was at 2.46% and the 30-year yield was at 3.56%, according to a 3 p.m. read.

Bloomberg BVAL was unchanged: 2.95% in 2025 and 2.80% in 2026. The five-year at 2.44%, the 10-year at 2.51% and the 30-year at 3.64% at 3:30 p.m.

Treasuries were weaker.

The two-year UST was yielding 4.611% (+7), the three-year was at 4.394% (+6), the five-year at 4.212% (+5), the 10-year at 4.222% (+4), the 20-year at 4.484% (+3) and the 30-year at 4.358% (+3) at 3:30 p.m.

Primary to come:

The Midland Independent School District, Texas, (Aaa/AAA//) is set to price Tuesday $876.355 million of PSF-insured unlimited tax school building bonds, Series 2024, serials 2025-2054. Raymond James.

The President and Fellows of Harvard College (/AAA//) is set to price Tuesday $750 million of taxable corporate CUSIPs, Series 2024A. Goldman Sachs.

The Texas Transportation Commission (Aaa/AAA//AAA) is set to price Wednesday $687.155 million of state of Texas highway improvement GO refunding bonds, Series 2024, serials 2025-2044. Jefferies.

The Idaho Housing and Finance Association (Aa1///) is set to price Thursday $535.790 million of single-family mortgage bonds, consisting of $290.940 million of non-AMT bonds, 2024 Series A, serials 2024-2036, terms 2039, 2044, 2049, 2054, 2054; and $244.850 million of taxables, 2024 Series B, serials 2024-2034, terms 2039, 2044, 2049, 2054. Barclays.

The Lower Colorado River Authority (/A/A+/) is set to price Wednesday $325.455 million of LCRA Transmission Services Corp. Project transmission contract refunding revenue bonds, Series 2024, serials 2026-2044, terms 2049, 2054. Wells Fargo.

The Pennsylvania Economic Development Financing Authority (Aa3/AA-//) is set to price Thursday $215 million of Villanova University revenue bonds, Series 2024. Morgan Stanley.

The Collier County Industrial Development Authority, Florida, is set to price Wednesday $197.240 million of NCH Healthcare System Projects healthcare facilities revenue bonds, consisting of $93.585 million of Series 2024A tax-exempt fixed rate bonds, $65.180 million of Series 2024B tax-exempt premium hard put bonds, and $38.475 million of Series 2024C taxable fixed rate bonds. J.P. Morgan.

The School Board of St. Johns County, Florida, (/AA//) is set to price Tuesday $169.155 million of certificates of participation, consisting of $152.665 million of new-issue COPs, Series 2024A, serials 2025-2044, term 2049; and $16.490 of refunding COPs, Series 2024B, serials 2025-2033. RBC Capital Markets.

The Sequoia Union High School District, California, (Aaa///) is set to price Wednesday $160 million of GO election of 2022 bonds, Series 2024, and 2024 GO refunding bonds. Raymond James.

The Florida Housing Finance Corp. (Aaa///) is set to price Wednesday $150 million of homeowner mortgage revenue bonds, consisting of $100 million of non-AMT 2024 Series 1, serials 2026-2034, terms 2039, 2044, 2049, 2055, 2055, and $50 million of taxable 2024 Series 2, serials 2026-2034, terms 2039, 2044, 2049, 2055, 2055. RBC Capital Markets.

The Minnesota Higher Education Facilities Authority (A2///) is set to price Wednesday $159.705 million of University of St. Thomas revenue bonds, consisting of $95.015 million of Series A bonds, serials 2035-2044, terms 2049, 2053; $25 million of Series B-1 bonds, serial 2053; $25 million of Series B-2 bonds, serial 2053; and $14.690 million of Series C bonds, serials 2030-2035. RBC Capital Markets.

Competitive
Cambridge, Massachusetts, (Aaa/AAA/AAA/) is set to sell $180.1 million of GO municipal purpose loan of 2024 bonds, at 11 a.m., Eastern, Wednesday.

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